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Changes to Credit Card Regulations Help Consumers

The Toronto Star-Aug 17^th, 2010

Few consumers realize that a credit card bill can take up to a decade to pay off and add hundreds of dollars in interest charges if they make only the minimum monthly payment. That unpleasant fact will become a lot more apparent as of Sept. 1, when credit card issuers will be required to clearly state the exact time and cost of making only the minimum payment.

U.S. department store Macy’s already does so on the front of its bills. A recent real-life example shows that a customer owing $375.65 who makes the minimum monthly $13 payment would take 10 years to pay off the bill. And the total cost would balloon to $821 due to interest charges, more than double the original cost of the purchases.The bill clearly shows that by paying just $2 more per month, repayment would take only three years and the consumer would save $287. It’s just one of several changes consumers will see as new federal rules governing Canada’s multi-billion dollar a year credit card industry come into effect next month. Among them-

(1) Consumers will get a 21-day grace period to pay off any new charges, even if they haven’t paid off all the previous month’s bill. Previously, credit card issuers could charge interest on any new purchases if the previous month’s bill was still outstanding.
(2) Banks and other credit card issuers must give consumers advance warning of any changes in interest rates, such as when a low introductory rate is about to expire and be replaced with a higher rate.
(3) Credit cards often come with different interest rates for purchases, cash advances and balance transfers. The new rules require the banks to spread any partial payments over all outstanding expenses equally, or apply it against the expense with the highest interest rate first.

The new regulations, first introduced in May 2009, are intended to help educate consumers and also curb some of the worst abuses. They come on top of provisions implemented in January. But critics say the changes don’t go far enough to cut the high cost of using credit cards, both for consumers and merchants. Many credit cards carry an interest rate of 19.5 per cent, while the Bank of Canada’s overnight lending rate is less than 1 per cent, they note.

“That’s window dressing. It’s not addressing the two main issues in regards to the rates and fees. The interest rates charged to consumers and the merchant fees charged to retailers,” said Liberal Senator Pierrette Ringuette.

A recent study by the Federal Reserve Bank of Boston found lower- and middle-income families pay the most interest charges and collect the fewest rewards, in effect subsidizing higher-income card users, Ringuette added.

“It’s great to know how long it’s going to take you to pay off your credit card. But it doesn’t do anything to address the root problem,” said Glenn Thibeault, the NDP’s consumer protection critic and MP for Sudbury. Credit card interest rates are too high and the cards are given to too many people who can’t afford them, he said. “When you’re buying groceries on your credit card and making a minimum payment, that’s a step toward bankruptcy,” Thibeault said.

Ottawa should have required the banks to raise their minimum monthly payments so that consumers “won’t be in debt forever,” said Genevieve Reed, head of research for the Quebec-based consumer group Options Consommateurs.

Minimum payments have been falling in recent years as a percentage of the total bill, making them more attractive to consumers in the short term but more expensive to carry in the long-run.

“I don’t think a lot of people read their bills that closely. It may become like warnings on cigarette packages,” said John Lawford, a research analyst with the Public Interest Advocacy Centre in Ottawa.

The Canadian Bankers Association warned last fall that the new rules would be “hellishly complicated” and cost their members “hundreds of millions” of dollars to implement. Chief executive officer Nancy Hughes Anthony said it could lead to banks issuing fewer card products or restricting lending practices. Hughes Anthony was not available for comment Monday. An association spokesperson said it was too soon to tell what impact the regulations would have on the industry. About 70 per cent of Canadian households pay off their credit card bills in full every month, the association says.

On the Financial Consumer Agency of Canada website, consumers can calculate for themselves how much it will cost and how long it will take to pay off an outstanding balance using only the minimum payment per month.

In a related move, Ottawa also brought in a voluntary code of conduct for the credit and debit card industry, to give merchants more power to negotiate fees with credit card processors. The code came into effect Monday, though some of the provisions don’t take effect until next February.

Canadians score better on credit than Americans

National Post-July 14th, 2010

The number of Americans with bad credit continues to rise. Is there any reason to believe Canadian credit is better? New statistics from U.S. credit agency FICO show about 25% of American consumers now have a credit score below 600 -- anyone below this is considered a high-risk borrower. Credit score determines whether a consumer gets credit and at what rate.

TransUnion LLC and Equifax Inc. are the two companies providing credit ratings in Canada. TransUnion provided a snapshot of the Canadian marketplace: For the period 2005-2009 there has been a downward shift in the number of Canadians with scores of 720 or better and an upward shift in scores less than 660. "Fewer consumers have higher-end credit scores and more consumers have a lower-end credit score," says John Branham, a consultant for TransUnion Interactive.

Bank of Montreal senior economist Earl Sweet believes Canadians are better off than Americans. "Canadians on average have about 67%equity in their home. That compares with under 40% in the U.S."

Credit scores are based on things like payment history, debt ratio, type of credit, so household equity may not have a direct impact on your rating. But it stands to reason that if you have more equity, you have less debt. At least that's true in Canada, where the goal is to pay down your mortgage as fast as you can.

Americans think differently. "Part of it is institutional and regulatory. The tax laws in the United States are quite different with respect to your ability to deduct mortgage interest payments from income taxes. It's not a hugely sensible policy, but it's been there a long time," says Mr. Sweet. The effect is Americans load up on mortgage debt.

Credit card delinquency rates -- the percentage of the population that hadn't paid off their credit cards in 90 days -- were 1.4% in Canada in the first quarter compared with 2.2% in the United States. Canadian mortgage delinquencies were a miniscule .45%.

But Laurie Campbell, executive director of Credit Canada, says Canadians shouldn't get too cocky. "I think the Americans are turning things around. Their savings rate is moving up," she says.

Survey finds most Canadians see debt as one of their top financial priorities, yet many struggle to keep it in check

Canadian Newswire– June 28th, 2010

More than four out of five Canadians rank being debt-free among their top financial priorities, yet close to half feel they lost ground or only held steady in the past year in their struggle to make it reality “We know Canadians are concerned about debt loads and the key is to take some concrete steps to keep it under control,” said Doug Conick, President and CEO of Manulife Bank of Canada.

When asked about their financial priorities, exactly one third of those surveyed by Manulifr Bank ranked being debt-free as a ‘10’ – their top financial priority. Another 36 per cent ranked it as a nine or eight on the 10-point scale. Slightly more than one in 10 (11 per cent) said they were already debt-free.

When it comes to reducing their debts, the past 12 months have not been good to many Canadians, despite record low interest rates, the poll suggests.

More than one in four (27 per cent) said their debt increased in the past year. Another 17 per cent saw no change in their level of debt, while 19 per cent said they did reduce their debt, but by less than they’d expected.

By comparison, fewer than one in 10 (seven per cent) said they shaved more than they expected from their debts in the past year.

When it comes to reaching their debt-free goal, 11 per cent said they have no idea how many years it might take them. Another 18 per cent said it will be more than 15 years.

“If they have a plan in place and are working with an advisor, they stand a better chance of reaching their goals,“ added Mr. Conick. “Often homeowners miss opportunities to reduce their debts because they don’t have the time or expertise to learn about the options available to them,” he said. “For example, when asked what they did the last time their mortgage came up for renewal, about two-thirds said they did not shop the market for the best rate or product. Instead, they stayed with their current lender and, of those almost one in three simply accepted the first offer their current lender provided.”

Stephanie Holmes-Winton, a Halifax-based Advisor and President of The Money Finder, describes learning to manage the debt side of the balance sheet as “one of the greatest wealth-building exercises Canadians can carry out.”

“Debt seems to be the final taboo and it needs to be brought to the forefront of all of our financial planning discussions,” she says. “Far too many adults never truly understand debt, much less how to use different types of debt to their best financial advantage. Working with an advisor who can educate clients on the best use of their debt dollars is of great value.”

We can blame future Canadian rate increases on Europe

by Benjamin Tal, CIBC economist, Montreal Gazette, June 10^th, 2010

No one should be surprised by the Bank of Canada's decision to raise interest rates by a quarter percentage point last week. What we should be more surprised about is that bank governor Mark Carney didn't commit to further rate hikes, saying such moves would have to be "weighed carefully against domestic and global economic developments."

The likely scenario is that the timing of future rate hikes will be determined by the situation in Europe - and the global economy generally. But it will be the health of the consumer that will determine how high rates will go.

The bank's strategy of low interest rates to pull us out of the recession worked as planned in Canada. Economic growth was up 6.1 per cent in the first quarter of the year, building on a nearly five per cent jump the quarter before. Most areas of the economy are contributing to this growth - consumer spending has rocketed ahead and residential construction put in its second consecutive quarter at more than 20 per cent annualized growth.

In fact, if we look back at the 2008-09 recession, we find that it was the first economic contraction on record where real household borrowing actually grew. Normally in recessions, consumers worry about job losses and start to tighten the purse strings by cutting back on discretionary spending.

It hasn't happened this time in Canada because consumer confidence did not fall that far during the recession. In fact, consumer confidence here is now only 20 per cent below the level seen during the happy days of 2007. By contrast, in the United States confidence is down by 60 per cent.

As a result, low interest rate policy proved much more effective in Canada than in the U.S. American consumers have been far more concerned about losing their jobs, so when offered an extremely low-interest loan to buy a new house or car, they aren't likely to take it. In Canada, as we've seen, consumers have jumped on the low interest rate bandwagon. Record-low rates did the job in lifting the Canadian economy out of the recession faster than most of the rest of the world.

However, consumer confidence in Canada has exceeded our capacity to spend. Incomes in Canada have not seen a similar rebound post-recession. Growth in real disposable income has been trending downward over the past year and to a certain extent debt is replacing income as a major driver of consumer purchases.

While we are taking advantage of cheap loans and mortgages to spend more, payments on that debt have left us little to put in the bank. As a result, the savings rate has dropped from 5.1 per cent in the second quarter of 2009 to only 2.8 per cent in the latest quarter. Huge job gains over the past couple of months should help replenish bank accounts, but record debt levels and now rising interest rates will see a slowdown in both consumer spending and housing starts.

The household debt-to-income ratio in Canada set an all-time record of 147 per cent last December. More troubling is the fact that this ratio is accelerating at a rate not seen since the mid-1990s.

That said, households are not relying much on credit for day-to-day consumption. After all, roughly 70 per cent of the increase in household debt over the past year has been mortgage debt due to a strong revival in housing activity. Of the other 30 per cent, roughly one-fifth of the increase in non-mortgage consumer credit is used to finance daily purchases. Furthermore, despite rising debt loads, ultra-low interest rates kept the Canadian debt-service ratio falling throughout this latest recession.

While this ratio is only back to the level seen in the third quarter of 2006, back then the effective interest rate on household debt was 1.1 percentage points higher than it is now. With interest rates already beginning to rise, this relatively elevated debt-service ratio suggests some Canadians will be feeling a debt-service squeeze in the coming months.

A further negative for household spending is the fact that household debt is also rising faster than assets. The debt-to-asset ratio (as reported in Statistics Canada's National Balance Sheet Account) trended upwards during the recession.

Despite the rebound in stock valuations and the recent surge in home prices, over the past two years Canadians have seen their liabilities rising twice as fast as their assets. With housing prices expected to drop by five to 10 per cent in a year or so, this ratio is likely to get worse before it gets better.

As we found in a study earlier this year, Canadian consumer fundamentals are weaker than they have been in almost 15 years. While our heads have told us we can afford to spend, our wallets are increasingly telling us we can't.

With many Canadians already sitting on debt loads that are eating up a big piece of their paycheques, this week's rate hike leaves us even less money to spend at the mall. As a result, the Bank of Canada needs to take into consideration the health of the consumer when deciding how much it will increase rates. Record- low rates achieved their goal of getting consumers spending again -- pushing rates up too high and too quickly could send us back to where we started.

Benjamin Tal is a senior economist at CIBC.

New rules cuff some mortgage borrowers

from Financial Post June 4^th, 2010

A headlock would be the wrestling term to describe the hold Canadian banks will have on some consumers because of new, more strict mortgagerules.

We are already seeing the impact of the changes that came into effect on April 19th , but were put in place well in advance by Canadian financial institutions. Consumers are increasingly selecting fixed-rate mortgages of five years or more because it’s easier to qualify for them.

On mortgages for terms of four years or less, including variable-rate mortgages, consumers must be able to pay based on the five-year fixed posted rate, which is now 6.1%. Go longer and you can use the rate on your contract, as low as 4.6%. No more than 32% of your gross income can cover principal and interest, property taxes and heat.

Peter Vukanovich, president of Genworth Financial Canada, the largest private provider of mortgage-default insurance, says only 5% of new high-ratio mortgages are going variable versus 15% just six months ago.

But there is another wrinkle to the new rules: Anybody shopping around for a better rate has to requalify based on their current financial qualifications. Stay with the same bank and there’s no re-qualification check.

“It’s definitely a headlock and not a loophole because a loophole you can get out of,” says Vince Gaetano, a mortgage broker with Monster Mortgage.

There is a large percentage of Canadians who get a renewal notice from their bank and just sign on the dotted line. The Canadian Association of Accredited Mortgage Professional has found only 22% of Canadians switch banks at renewal time. A significant portion of the remaining 78% are sheep being led around by their financial institutions.

Those looking for some choice may find what was good enough to get into the market a month ago may not meet the test today.

Consider that as recently as two years ago, consumers were able to buy a house with no money down and a 40-year amortization schedule. If that consumer was making regular monthly payments, they would have paid down only 4.7% of their principal after five years. Today, that customer would still be high ratio and subject to requalifying if they switched banks.

“It’s not all of them, but a majority of first-time buyers with just 5% down or less won’t be able to qualify if they go to another bank,” Mr. Gaetano says. Many of those buyers were qualifying based on the three-year rate — about 200 basis points lower than the current qualification rate.

If house prices went down, something many in the real estate community have suggested could happen, that would be an even bigger blow for consumers. It would mean an even larger percentage of homeowners would still be considered high ratio upon renewal because they wouldn’t meet the test of having 20% equity in their home.

Martin Beaudry, vice-president of lending at ING Direct, says there is no question the new rules will have an impact on consumers looking to switch banks, but noted anyone who had a 40-year amortization and changed institutions also had to requalify and there hasn’t been a huge impact.

“There will be a segment of the population tied down by the new rules to their bank,” Mr. Beaudry says.

That’s a position nobody should be in.

Bank of Canada raises benchmark rate .25%

from cbc.ca June 1^st 2010

The Bank of Canada did the expected and raised its benchmark interest rate to 0.5 per cent on Tuesday, the first hike in nearly three years. The bank moved its overnight lending rate 25 basis points higher, up from 0.25 per cent. In doing so, Canada became the first G8 nation to raise rates after an aggressive round of cuts at the start of the recession in 2008, and after most developed economies showed signs of rebounding in 2009.

"The bank has decided to raise the target for the overnight rate to one-half per cent and to re-establish the normal functioning of the overnight market," the bank said in a statement.

The rate has been frozen at 0.25 per cent since April 2009, when the bank made a "conditional commitment" to keep rates at such an extraordinary low as long as economic circumstances continued to warrant the shot in the arm of easy lending.

After recent reports showed Canada's economy expanded at a 6.1 per cent annual pace in the first quarter, and created a record 109,000 jobs in April alone, the bank decided the time was right to act.

"He's taking his foot off the gas, he's not slamming on the brakes," RBC chief economist Patricia Croft said. It's the first time Mark Carney has opted to raise interest rates since he became the governor of the Bank of Canada more than two years ago.

There were concerns that the deteriorating economies of Europe and elsewhere might compel the bank to stand pat, but the bank clearly paid more attention to undeniable signs of local strength. "The domestic case for higher rates simply overwhelms concerns about the international backdrop," BMO chief economist Doug Porter said.

Further hikes possible

The bank's next scheduled meeting to discuss rates is July 20. Given how long the rate has been so low, many economists expect several small rate hikes in a row to follow. But in its policy statement Tuesday, the bank hinted that's not necessarily the case.

"In most advanced economies, the recovery remains heavily dependent on monetary and fiscal stimulus," the bank said in its statement. "Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments," it added.

Indeed, the bank left the door open to hold at 0.5 per cent, or even retract if the global situation deteriorates, Croft said. "It's not a given that another hike is coming on July 20, as the bank made it clear that raising rates is going to be very slow and very cautious," she said.

Canada's major chartered banks reacted quickly to the news, increasing their prime rates by the same 25 basis points. Within hours of the Bank of Canada's announcement, Royal Bank and TD Bank boosted their prime lending rates to 2.5 per cent, from 2.25 per cent, effective Wednesday. The other major banks are expected to follow suit.

Canadians need to improve financial literacy

National Post May 26th, 2010

Why do people default on mortgage and other loans? It turns out that it's not so much the amounts they owe, but that they are unable to do the math that tells them exactly what their financial situation looks like. Lack of ability to add turns out to be a cause of many consumer insolvencies.

The damage caused by failure to do sums becomes evident when people find themselves in credit counselling. "The common characteristic of people in serious debt is that they don't know how to budget or track expenses," says Sandra Sherk, executive director of the Credit Counselling Service of Ontario's Durham Region. "They let what they owe and incidentals get ahead of them."

The problem is not limited to Canada. In a Federal Reserve Bank of Atlanta working paper published in April 2010, economists Kristopher Gerardi, Lorenz Goette and Stephan Meier found, "a large and statistically significant negative correlation between financial literacy and measures of mortgage delinquency and default." Translation – folks who can't add up their obligations are more likely to default on them than those who can do their sums.

The researchers asked a series of questions to test responders' financial fluency.

For example: "a second hand car dealer is selling a car for $6,000. This is two-thirds of what it cost new. How much did the car cost new?" Gerardi and his Fed colleagues connect lack of financial fluency to the U.S. mortgage meltdown. Their argument – soaring house and condo prices in 2004 to 2008 led some people to think that finance cost did not matter and therefore did not need to be tracked or even understood. All that followed is history, but as Gerardi noted, low levels of saving are correlated with inability to do simple calculations. When income, which is correlated with education, is statistically removed from the analysis, the conclusion remains – if you can't add up what you owe, you can be in big trouble. And that's how innumeracy, the lack of ability to cope with numbers, became one of the causes of the mortgage meltdown.

What happened to arithmetic? In many schools, the three Rs – readin', ‘writin' and ‘rithmetic – have had to make way for the teaching of social skills and community values. According to Statistics Canada, high school dropout rates, 12.2% for young men and 7.2% for young women in 2004-2005, have declined from the level in 1990-1991 when the rates were 19.2% and 14.0%, respectively. The dramatic improvement in school retention rate reflects students' awareness that education is the ticket to employment and a good income. It also reflects grading standards that allow those with poor academic skills to advance rather than be stigmatized by flunking out. The consequence of this shows up when graduates can't handle questions such as another asked in the Atlanta Fed survey: "In a sale, a shop is selling all items at half price. Before the sale, a sofa cost $300. How much will it cost in the sale?"

Lack of basic arithmetic skill compounds a serious and growing problem. The days of a farmer or shopkeeper with one debt to one bank are long gone. As Brock Cordes, a lecturer in marketing at the Asper School of Business at the University of Manitoba notes, "people are baffled by the many credit obligations they may have. A few decades ago, a person might have one credit card and one mortgage. Today, he may have seven credit cards, a few lines of credit, and a mortgage. There are different payment options. And there is ever more fine print on credit card disclosures and other documents. People have lost the ability to add. They let little calculators do it for them. It is no wonder that innumeracy is a problem."

Inability to add shows up in Canadian bankruptcy data. Bill Courage, a Chartered Insolvency Restructuring Professional in the Owen Sound, Ont., office of BDO Canada LLP says, "lack of numeracy is a contributing factor in personal bankruptcy. People don't keep track of what they are doing. ‘No money down and $27.95 per month starting next year, is something that they can understand, but they don't use their common sense. Many people just don't add up what they owe." This casual attitude toward debt shows up when snowballing debts become an avalanche of obligations.

"People who get into credit trouble don't watch the cost of loans They go from 5% on a mortgage to 15% to 19% on standard credit cards like Visa, then they load up on credit on store plastic that may have 28% interest rates, then borrow from payday loan stores at rates that may work out to 58% per year," Ms. Sherk explains. These rates, to which they agree, trap them in debt forever, she explains. "If you owe $3,000 on a major credit card and you pay $60 per month, which is a minimum, and the interest rate is 17%, it will take 7 years and 4 months to pay if off."

Rising household debt threatens recovery

Globe and Mail, May 26th, 2010

Bloated levels of household debt threaten to dampen Canada’s economic rebound as consumers focus on paying their bills rather than spending freely.

Household debt has more than doubled from 1989 levels and now stands at a record $1-trillion – or $1.47 for every dollar of disposable income. With the Bank of Canada expected to raise interest rates, perhaps as early as next week, vulnerable Canadians could soon find themselves emptying their pockets to cover higher interest payments.

“The high rate of household indebtedness is a source of risk” to the Canadian economy, the Organization for Economic Co-operation and Development cautioned in a report Wednesday. It noted that household debt has swelled further in recent months – an unusual development. People usually save during recessions.

The combination of higher interest rates and large amounts of debt could reduce consumer spending – a cornerstone of the Canadian economy and an essential component of the country’s recovery from the recession. High levels of debt also leave consumers financially vulnerable if they fall ill or lose their jobs.

Strategists had thought that a June 1 rate hike was a done deal after a string of stronger-than-expected Canadian economic reports. Their certainty has ebbed, though, as European debt problems shake global confidence. The OECD thinks the Bank of Canada should act swiftly to raise rates to prevent the economy from overheating.

The unclear outlook for rates has Canadians such as Alice Tracey concerned about their finances. The massage therapist in Ottawa spends 50 per cent of her income paying down the credit card debt and student loans she accumulated while building her business, and is already feeling short on cash. Even a small boost in interest rates will force her to revisit her plans to attend school to become a chiropractor.

“It really sucks that I had to spend a lot of money to get set up and now I’m kind of trapped in a cage if rates go up too much,” she said. “I’ve already cut back on expenses – I don’t buy fancy clothes, I don’t eat out. I don’t want to be in a situation where these debts are just impossible to pay off.”

Regardless of the effect on consumers, the OECD said the Bank of Canada should boost interest rates “without delay” throughout this year and next so that the economic recovery doesn’t spin into an asset bubble fuelled by easy money.

“The Bank of Canada should start normalizing its policy rate without delay and tighten gradually throughout the projection period” of 2010 and 2011, the OECD said in a global economic outlook. It also boosted its growth forecast for the Canadian economy, to 3.6 per cent this year and 3.2 per cent next year.

There’s no guarantee the central bank will raise rates, but if it does economists are expecting no more than a 25-basis point increase. (A basis point is 1/100th of a percentage point.) Consumers are sitting on a lot of debt, so even small increases will serve the purpose of cutting spending and cooling the economy, CIBC economist Benjamin Tal said.

“What the levels of debt mean is that monetary policy will be extremely effective in slowing down consumers,” he said. “There will not be more delinquency – debt repayment will come at the expense of consumer spending.”

Consumer spending is something that Ed Laverty watches closely. He has been selling high-end audio and visual equipment at Kawartha TV & Stereo in Peterborough, Ont., for 35 years, and said every sale is a vote of confidence in the economy. “People become much more cautious about what they spend when things are uncertain,” he said. “Sales came back pretty good this year, but they’ve levelled off. Things are tolerable, but we sure wouldn’t mind going back to early 2008.”

Recession fails to dampen Canadians’ enthusiasm for debt ~ Rapid rise in mortgage rates could require major belt-tightening, warns CGA-Canada report

(Vancouver, May 11, 2010) —

The Great Recession has done little to dampen Canadians’ enthusiasm for taking on debt, says a new survey-based report by the Certified General Accountants Association of Canada (CGA-Canada). Nearly 60% of respondents whose debt had increased – and 92% whose debt decreased or stayed the same – still felt they could either manage it well or take on more debt.

Where Is the Money Now: The State of Canadian Household Debt as Conditions for Economic Recovery Emerge is available at
http://www.cga-canada.org/canada/debt

“This report is another indication of Canadians’ readiness to consume today and pay later,” says Anthony Ariganello, President and CEO of CGA-Canada. “The concern is do they understand the full cost of paying later?”

The report is based on a national survey conducted in early 2010. Among its findings...

-Household debt in Canada reached a new high of $1.41 trillion in December 2009. If household debt was spread among all Canadians, each person would hold more than $41,740 in outstanding debt – an amount 2.5 times greater than 1989.

-Canada ranks first in terms of debt-to-financial assets ratio among 20 OECD countries and its debt-to-income ratio reached 144% by the end of 2009.

-If the mortgage rate goes up by two percentage points, mid-income to mid-to-high income families may be required to tighten their budgets by cutting an estimated 9% to 11% from ’other expenses’, if they wanted to maintain the same levels of spending on shelter, taxes, food and transportation.

-78% of respondents said they would not change their savings patterns to build or rebuild a financial cushion they believed right for them. Some 14% said they had decreased their usual rate of savings because they had less confidence in the financial markets and growth opportunities.

Personal lines of credit absorb some 60% of consumer credit issued by chartered banks.

“Canadian households’ use of financing is one of the few things that did not noticeably adjust to a changing economic reality,” says Rock Lefebvre, Vice-President of Research and Standards at CGA-Canada and co-author of the report.” The growth in household debt has been strong during good times and showed remarkable resilience during challenging times.”

Ariganello says that some people wisely consolidate their credit card debt and replace it with a lower-cost line of credit.“And that’s a sensible move,” he says. “But it’s still debt. You don’t want to hang onto it any longer than necessary.”

Variable, fixed or capped rate or possibly a "hybrid" of a split term mortgage -which is right for you?

Canadians with mortgages have to make a tough choice whether to select a variable, fixed or a "hybrid" split term or a capped rate when obtaining or renewing a mortgage. This is one question that comes down to basically two factors-where rates are at the time and your own personal financial situation. No one can predict the direction or volatility of interest rates for certain -like you cannot forecast the price of oil - but it can be an educated guess when you look at historical trends and do your own homework with the input of professionals.

Here is a very good 7-minute interview with a mortgage professional from Business News Network that we encourage you to watch. We also recommend you read this article "As mortgage rates rise, is it time to lock in?" by Ellen Roseman, financial columnist with the Toronto Star, published April 28^th, 2010.

Canadian Consumers Continue to Fall Behind on Credit Payments

Challenge for Lenders Is Managing Higher Risks from Delinquencies

Canada News Wire, April 28^th,2010

The rising unemployment rate in Canada has had a trickle down effect on consumers and lenders alike, according to Nadim Abdo, vice president of Consulting Solutions, Equifax Canada Inc.

For lenders, the challenge has become how to manage the higher risk associated with higher delinquencies. According to recent Equifax Canada statistics, consumer credit delinquency data show that Canadians continue to fall behind on their credit payments at an increasing rate. The average 90+ day delinquency rate in Canada rose approximately 29% from September 2008 to September 2009. That is much higher than the May 2008 to May 2009 increase of 19%. This means that more than a half million Canadians are more than 90 days behind on their credit card payments. Equifax reports double-digit increases in Calgary (45%), Edmonton (40%) and Vancouver (38%). In addition, consumer bankruptcies increased 42% from September 2008 to September 2009.

The national 90+ delinquency rate is at its highest level in three years. Nova Scotia has the highest average delinquency and Quebec the lowest, predominantly driven by the large presence of the Government sector in Quebec City. Urban areas experience some of the largest jumps in delinquency rates. Five of the ten cities monitored by Equifax Canada have annual increases in delinquency rates higher than the national averages.

"We've seen the most significant increases in credit card and sales finance purchases," says Abdo. "Credit card rates started spiking in December 2008," he continues. "In July 2008 to July 2009, for credit cards alone, we've seen the delinquency rate increase almost 40%. Such transactions typically represent the purchase of durable goods, and consumers appear to be willing to fall behind on them first before they miss payments on their bank loans or lines of credit."

For revolving loans, the picture is somewhat different. "Our data show that bank revolving loans seem to be the lowest risk, mainly because a large percentage of these loans are secured," Abdo says. According to Equifax Canada, the performance of 90+ revolving loans in 2008 had consistently improved but has recently increased, reaching 0.58% in September 2009.

What do these statistics mean for the business of banking? Abdo says bankers are focusing more on their existing portfolios of customers rather than on securing new customers. Also, as existing customers are "going delinquent faster," existing loan portfolios are requiring closer monitoring. Abdo says Equifax Canada recommends refreshing loan scores on more than just a semi-annual or quarterly basis to check if the risk has shifted.

"Consumers are changing," he adds, "and we believe the optimal point is to refresh loan scores every two months to check the risk." There is a renewed focus on collections for many banks. "Collections are difficult," Abdo says. "Banks must understand how to optimize collection activities. What customers can we get the most from? How do we better manage our accounts? As delinquencies continue to rise, these questions become more important."

The most significant change in consumer credit behaviour over the past two years has highlighted the need to understand credit delinquency risk at the regional level. "The Eastern provinces, which are predominantly commodities driven, started experiencing significant growth in delinquencies and bankruptcies 24 months ago," Abdo says. "Conversely, the Western provinces, which are predominantly natural resources driven, saw the increase in the past 12 months, concurrent with the fall in oil prices. To better assess regional delinquency risk in an unbiased manner, Equifax Canada has just released a new regionally adjusted delinquency score to assist financial institutions in better risk mitigation of consumer credit portfolios. This is the first risk score in the Canadian market to address regional delinquency risk."

Reprinted with permission from Canadian Quarterly, Fall/Winter 2009, published by The Risk Management Association (RMA).

Who's afraid of higher interest rates? Not Canadian home buyers, says CMHC

April 26, 2010 - 18:45

Julian Beltrame, THE CANADIAN PRESS

OTTAWA - The cost of buying a home continued to inch skyward Monday as two of Canada's biggest banks raised mortgage rates, one more ominous sign that home ownership is about to get a bit less hospitable. Royal Bank and TD Canada Trust each bumped up their rates by between nearly a seventh and a quarter of a percentage point, the third recent increase amid higher borrowing costs on the bond market, where banks finance their mortgage lending.

The increases came just as a new online survey offered a snapshot of the halcyon days of February, when rates were at rock bottom and Canadians active in the mortgage market, including first-time buyers, didn't seem to have a care in the world. The annual survey by Canada Mortgage and Housing Corporation, which predates the latest wave of rate increases, suggested that respondents were not only comfortable with their level of debt, but two thirds of them expected to pay their loans off sooner than required.

"Let's face it, over the last month, Canadians have been hit with a wave of stories of mortgage rate increases or the possibility of tighter or higher interest rates and that's clearly had some effect on consumer confidence," said Doug Porter, deputy chief economist at the Bank of Montreal.

While only a small percentage reported being concerned about their mortgage debt, the actual number of those who are vulnerable will grow as mortgage rates climb over the next year, he added.

The CMHC survey also suggested that Canadians have become savvy consumers when it comes to buying a home. On average, those surveyed said they took a year to think through their decision; 89 per cent reported using the Internet to research their mortgage options.

"First time home buyers, they do their homework," said Pierre Serre, the CMHC's vice president of insurance product and business development.

"People are getting more into the Internet, people are getting informed and people are comfortable with home ownership." The survey found that 81 per cent of respondents reported being "comfortable" with their level of debt.

The housing market has been one of the mainstays of the economic recovery, with prices and sales already back, and in some markets, beyond pre-recession levels.

In a separate report Monday, the real estate brokerage firm Re/Max said luxury home sales had soared in the first quarter of 2010, with nine of 13 markets shattering records for the winter months. Kelowna, B.C., led the way in terms of percentage increase at 700 per cent, followed by Montreal at 300 per cent, Victoria at 275 per cent and Toronto at 263 per cent."Recovery in the upper end has been nothing short of remarkable," said Elton Ash, the regional vice-president for Re/Max in western Canada.

Home-buying enthusiasm has raised concerns at the Bank of Canada about super-low interest rates luring some into taking on more debt than they can afford. Although affordability remains high, given the low rates, household debt has risen to a record $1.47 per $1 of disposable income.

Bank governor Mark Carney and his deputies have warned that would-be buyers need to know they can afford not only their current mortgage payment, but whatever their payments will be when interest rates rise. The central bank has hinted it may start raising its policy rate as early as June 1, but the chartered banks have increased longer-term, closed and some variable mortgages by close to a percentage point.

The CMHC survey of 2,500 who have actually taken out a first mortgage, or renewed their mortgage in the last year, strongly suggested they did so with eyes wide open. Among first-time buyers, 85 per cent said they had a good understanding of how much of a mortgage they could afford.

The results weren't surprising to CIBC economist Benjamin Tal, who recently researched the housing market for his bank. Tal's report tended to undercut concerns that Canadians were significantly vulnerable to rising interest rates. "The number of people who are really, really vulnerable is a relatively small number," he said,. "Clearly, when you have a situation of interest rates rising there will be defaults rising, but it will not be over the cliff like the U.S., it will not be a crisis." Tal says Canadians traditionally adopt a variety of strategies to rising rates, including locking in to longer-term fixed mortgages, something he says is already occurring.

The other difference between the Canadian situation and that of the U.S., where the sub-prime crisis triggered a financial market meltdown, is that lower-income Canadians tend to be more conservative than higher-income buyers, said Tal.

Unlike in the U.S., lower-income Canadians tend to take out fixed-rate mortgages, he said. -With files from Sunny Freeman in Toronto

Defusing Canada's Debt Bomb

Globe and Mail, April 19^th, 2010

Our burdens are manageable, but the trends are ominous: high consumption, dwindling pensions, rising interest rates

While many economies around the world are staggering under huge public and private debt burdens, Canadians are likely feeling sanguine. Our governments' net debt burdens remain well below international norms, and we have not experienced anything like the housing meltdown in the United States, which has put more than one-third of that country's mortgages “under water” – a scenario in which the amount owed exceeds the market value of a home.

Still, rapidly rising household debt amounts to a “Canadian debt bomb” that has been ticking more loudly. Canadians will have to slow their debt accumulation or it will explode. Moreover, many Canadians will need to save more to achieve their desired standard of living in retirement.

Much of the alarm about the indebtedness of Canadian households focuses on the sector's debt being 146 per cent of personal disposable income. This is up from 90 per cent just 20 years ago. And two decades before that, indebtedness was less than 80 per cent of after-tax income. This rise in household indebtedness is a sociological as well as economic and financial phenomenon.

Each generation seems to move further away from the notion of saving before making major purchases. The culture has shifted to borrowing so that the purchase can be made immediately. Financial innovations, such as home-equity lines of credit, have facilitated the shift.

A trend rise in household indebtedness is not necessarily troubling. Much of this debt is long-term, so it does not need to be paid out of just one year's income. In good part, the debt was acquired to build assets, principally in housing but also in equity markets. With strong asset rates of return until the Great Recession struck, net household worth had been rising despite the growing debt. And with record low interest rates, the cost of carrying that debt is low.

The soundness of the Canadian financial industry provides some security not found in other countries. Most Canadian institutions have strict conditions for lending and are well capitalized to cover any defaults. Mortgages with less than 20-per-cent equity must be insured.

The overall trend toward greater household indebtedness may not be very troubling, but the recent acceleration is. For many years, debt was rising about 2.5 percentage points faster per year than income. The gap had widened to 4 to 5 percentage points by 2005 and blew even wider during the recession. Despite a softening in incomes, housing returned to its boom after a brief pullback as Canadians embraced the allure of low interest rates.

Some telltale signs of stress are already appearing. In 2008, the value of household assets experienced its first decline, falling 2.7 per cent. On the other hand, liability growth continued, unabated by the Great Recession, rising by 9 per cent in that same year. And while assets recovered somewhat in 2009, the asset-to-liability ratio hit an all-time low as liabilities again grew faster than assets. The Bank of Canada estimates that, despite the record low interest rates, debt servicing charges put 6 per cent of Canadian households in a vulnerable financial position.

That will surely rise as interest rates inevitably rise. TD Economics expects short-term interest rates to rise to around 4 per cent and longer-term government bond rates to be closer to 5 per cent within the next few years. That will push the portion of household income going to interest charges to a 20-year high.

In a similar interest-rate scenario with continued strong growth in credit, the Bank of Canada estimates that the percentage of vulnerable households will rise to 8.5 per cent. Another percentage point’s increase on top of our interest-rate projection, and the portion would be almost 10 per cent. The hurt to Canadian households and the economy would be palpable. But even this scenario would not bring about a financial meltdown of the type we have seen elsewhere, due to the strong capital positions of Canadian financial institutions.

The path forward is clear. Defusing the debt bomb requires Canadian households to slow the pace of debt accumulation. It must come down from the recent annual growth of almost 9 per cent to no more than 6 per cent. Consumption can still rise, but at a more restrained pace. Some things households want will have to be forgotten or deferred until some money has been saved.

This is all the more necessary because household balance sheets are unlikely to be skated back onside by huge capital gains from housing and equities of the kind that occurred throughout the 2000s, when housing-price gains averaged 8 per cent per annum. TD Economics expects future rates of return to be much lower than past averages. So, achieving a desired income stream in retirement will require amassing a larger pool of savings. Instead of 8-per-cent average house-price gains, in the future they are unlikely to exceed 4 per cent. In a 2-per-cent inflation world, a fixed-income portfolio is unlikely to return more than 4 per cent a year, and equity markets (including dividend returns) will turn in about 7 to 8 per cent.

This means that a household’s entire portfolio will be providing a return that is 2.5 percentage points less every year, relative to what households have become accustomed to in the past decade. Consequently, household consumption must rise at a slower pace than in the past decade. Spending on the back of asset appreciation will become harder to do.

The need for Canadians to save more will be a lingering issue for many years to come. Several recent studies have concluded that Canada's retirement-income system is reasonably sound, in that most Canadians have enough savings to preserve their standard of living in retirement. But they do identify a significant group, concentrated in the middle and upper-middle income classes, that is vulnerable because they do not have employer-sponsored pension plans and have not been putting enough aside on their own.

This comparatively hopeful view is largely backward-looking. The question of the adequacy of retirement savings is shrouded in financial literacy challenges. Almost one-third of respondents to a Statistics Canada survey acknowledged they had no plans for their financial needs in retirement.

Moreover, some recent trends are rather ominous. The coverage of employer-sponsored pension plans continues to dwindle, especially for the gold-plated defined-benefit plans. Work is increasingly shifting to self-employment, contract and part-time positions where there are few benefits and greater income fluctuations.

Demographics and workplace changes are collapsing the period available to amass savings. With more education, people enter the work force later. Until recently, they were retiring earlier. And couples are older when they have children, so this additional expense continues into what used to be savings years. The median age for first-time mothers in Canada has risen to 30. So right into their 50s, parents are incurring postsecondary education bills for their children. In previous generations, these were out-of-pocket expenses for parents or covered by students' part-time earnings. The cost of a BA for a child born today will be almost $100,000 in today's dollars if the student does not reside at home. With two children, it doubles to practically $200,000. That's a game-changer for lifelong savings requirements. And again, in contrast to the past, Canadians shouldn't count on extraordinary savings being furnished from sustained, outsized gains from housing and equity markets. The savings will have to come the hard way: out of earned income after taxes.

Canadians can take some comfort that they are not yet facing a financial disaster sparked by excessive debt – although that could happen. For instance, double-digit interest rates would bring down household balance sheets like a cheap deck of cards. The threat of really high rates would come from monetary policy authorities letting inflation get out of hand and fiscal policy authorities not curbing debt burdens. There is little danger of hyperinflation now, but central banks around the world will need to mop up liquidity as economies recover. Canadian governments are setting out programs to return to fiscal balance. But the same cannot be said for many other countries.

In case we had forgotten, the Great Recession reminded us that Canada is highly vulnerable to financial shocks emanating from outside the country, especially the United States. Of course, sharply higher interest rates could be a catalyst for a plunge in housing prices. The extent of any decline would depend in part on whether we are now in a housing bubble. TD Economics does not believe we are in a bubble and barring the disaster scenario painted above, predicts housing prices will see a sharp moderation in the pace of increase rather than a level decline.

All Canadians had better hope that Canadian policy-makers and regulators are on their game to avoid these catastrophes. The rest is up to Canadian households. Many of them will need to save more today and save more tomorrow. It may not be the end of a party, but an earlier bedtime is recommended

Canada's Brewing Debt Storm: For every $1 of disposable income, Canadians owe a record $1.47. How did it come to this?

Globe and Mail, Saturday, April 17th, 2010

Canadian borrowers are fast approaching a day of reckoning. Lured by cheap money to buy up, buy in, expand and make over, families have pushed credit levels to a record high. Now, mortgage rates are beginning to creep up and the Bank of Canada is poised to retreat from the record-low interest rates it adopted to fight the recession and spur recovery.

The end of the free-money era has left consumers more vulnerable than ever, and those who threw caution to the wind could soon face costs they can't handle.

Household debt has surged three time faster than income in recent years and now stands at a record high of more than $1-trillion. Put another way, Canadians owe about $1.47 for every dollar of disposable income. Even more remarkably, they took on more debt during the slump – a first for a recession – because borrowing was so cheap.

With debt levels this high, even a small hike in interest rates will be ugly for those whose incomes aren't rising fast enough to meet their day-to-day expenses.Their woes could have a snowball effect: As debt-strapped consumers pull back, their credit woes spill over into the broader economy and risk putting a damper on the recovery.

For some, the trouble has already begun. John Silver, who runs Community Financial Counselling Services in Winnipeg, has seen his caseload increase 20 per cent from last year. “We re seeing more people coming in with more stress with regard to their debt,” he said.

Much of the recent rise in debt in Canada has been due to low interest rates, generally easier credit terms and fierce competition among lenders. Even when the recession hit in late 2008, Canadians remained far more confident than Americans in part because of a better housing market and stronger financial institutions. Consumer confidence in Canada is only about 20 per cent below where it was in 2007 whereas it's 60 per cent lower in the U.S.

The higher confidence level and stronger banks meant Canadians were far more eager to borrow during the recession than Americans, said Benjamin Tal, senior economist at CIBC World Markets.

“I can offer you a very low mortgage in the United States and you won't take it,” he said. “In Canada you jump on it, because confidence is high.” Now though, “what I'm seeing is a consumer that is more sensitive to higher interest rates,” he added.

Most of the increased debt, roughly 70 per cent, has been in mortgages, reflecting the still hot housing market in much of the country. That has left many households struggling to meet monthly payments on hefty mortgages and more susceptible to rising rates. Families in Vancouver, for example, spend about 68 per cent of their disposable income on the cost of maintaining their house, compared to less than 40 per cent 10 years ago.

“There's been a real frenzy just to get in [to a house] at all cost, because if you don't get in you may never get in,” said Scott Hanah chief executive of the Credit Counselling Society, a non-profit group based in Vancouver that helps people sort out their debts.His organization is fielding about 4,000 calls a month and has seen a 10-per-cent increase this year in the number of people seeking help.“Last year we saw an increase in activity of over 50 per cent. So to have a further 10 per cent increase on top of that is significant,” he added.

There are many people in the same position as James Laidlaw and his young family, who borrowed to build onto their Toronto home, adding construction costs on to a mortgage to help finance $250,000 in renovations and an expansion of 600 square feet.

Even a jump in mortgage rates of just half a percentage point will mean an extra $1,700 a year for Mr. Laidlaw, his wife and two children. "Every dollar counts and I'm already thinking about the other things that may suffer," he said. "Maybe we'll have to lose the vacation, or scale back Christmas."

Canadians used to be big savers and cautious borrowers. In 1982, Canadians socked away 20 per cent of their disposable income and per capita debt stood at about $5,500, according to Statistics Canada. By contrast, Americans were saving just 7.5 per cent of their disposable income at that time and borrowed $6,500 per capita.

Savings and borrowing soon went in opposite directions in both countries and by 2002 debt levels surpassed disposable income for the first time. In 2005, the savings rate in Canada fell to 1.2 per cent, about the same as in the U.S. Mean while, per capital borrowing jumped to $28,390 in Canada and $48,700 in the U.S.

Consumers are feeling the pinch. A survey last year by the Certified General Accountants Association of Canada showed 21 per cent of respondents could barely meet the interest payments on their loans. The group is about to release a similar survey this year and, said the group's chief executive Anthony Ariganello, the level of those struggling to cope has climbed to about 23 per cent. “We may be back into a recession [next year] because, remember, part of what has helped us get out of this recession was spending and consumer spending at that, and if people don't have money to spend we could be rapidly back in to where we started,” he added.

And while consumer spending and confidence have increased recently, both may be short lived, said CIBC's Mr. Tal. “There is a gap between confidence and ability,” he said. “It's a gap between what's in your head and what's in your pocket. And this gap is, of course, a matter of concern because consumer confidence is high due to the fact that interest rates have been extremely low and people are able to finance those mortgages and those loans.” In a recent report, Mr. Tal concluded that “Canadian consumer fundamentals are weaker than they have been in almost 15 years.”

That's something that concerns officials at the Bank of Canada. If consumers run into trouble with their mortgage payments, that in turn can lead to “wider problems with other consumer loans, such as credit card debt,” David Wolf, a Bank of Canada economist, said in a speech in January. “Consumers may also have to curtail other spending to cope with their debt burdens, creating adverse spillovers to the real economy.”

Michael Hammond has already scaled back his plans. The Ottawa resident has a pre-approved mortgage of $220,000 and has been looking for a house. He nearly bought a $214,000 townhouse last week, but backed off because he's still considering the effect of eventual higher rates. “I am mulling over mortgage scenarios in my head like crazy right now,” he says. “It's a scary time to be looking for a house. I'm looking at three cheaper homes today because I am so worried about overextending myself and getting caught five years from now.”

Neil Bigelow and his partner Tina Boudreau are also running over financial calculations as they prepare to buy their first home. The couple has been planning to buy a piece of land in Halifax and build their own home. But the prospect of rising rates has them worried about how much to borrow.“Right now I could probably get $200,000 mortgage,” said Mr. Bigelow. “But what's going to happen down the road because interest rates are not going to stay where they are at.”

By the numbers

68%: Average amount of disposable income households in Vancouver spend on the cost of a home

44%: Average in Toronto

35%: Average in Calgary

36%: Average in Montreal

30%: Average in Ottawa

21%: Percentage of Canadians who say they can’t manage their debt load

147%: Debt-to-income ratio in Canada, a record high

157%: Debt-to-income ratio in the United States

70%: Percentage of debt held in mortgages in Canada

Credit card and debit card industry has one month to adopt new code of conduct regarding : Flaherty

The Canadian Press, April 16^th, 2010

TORONTO - Canadian retailers' groups are applauding a new code of conduct for credit-and debit-card companies, a move that's intended to reduce the cost of card transactions for businesses and bring more clarity to consumers.

Finance Minister Jim Flaherty said Friday that the voluntary code of conduct will be in effect within a month, and that government officials were prepared to put legislation in place if the businesses don't regulate themselves. The code is primarily aimed at reducing the cost of transactions for businesses, which pay a fee to credit and debit companies each time a consumer swipes a card.However, also included are rules that require credit-card companies to get consent from consumers before premium cards are issued and to provide proper notice of changes to their contracts.

The Canadian Federation of Independent Business welcomed the announcement, calling it an "important step" as the summer business season nears."These developments will create a better future for merchants and help ensure a fair and transparent credit-and debit-card market instead of just letting large industry players call all the shots," federation president Catherine Swift said in a release.

The Payments Accountability Council, which is led by the Retail Council of Canada and the Canadian Council of Grocery Distributors and backed by more than 250,000 Canadian merchants, called the announcement "a solid victory for merchants across the country."

Flaherty made the announcement during an event at Toronto's Eaton Centre on Friday, and said the industry has until May 17 to review and adopt the measures.

The new rules give merchants the freedom to choose which card networks they use - which could affect plans by major credit-card companies to roll out debit services in Canada that would compete with Interac Association for services at cash registers.

Critics had suggested that credit-card companies would charge merchants a fee to use their debit networks based on a percentage of the sales price of each transaction.

Interac, a non-profit government-regulated organization, operates on flat fees which are determined each year using a break-even scale. Typically, the Interac charge amounts to less than a cent per transaction for both merchants and the customer's bank.

Retail Council of Canada president and CEO Diane Brisebois said it would be unfair for credit-card companies to take such a large cut. "You can understand why it's a percentage fee on a credit card - there's risk, it's a loan," she said.

"On a debit transaction they open your account, they close your account, the money is out (and) everyone gets paid immediately. So why should it be a percentage fee on a debit card?"

Flaherty proposed the code last fall after taking heat from retailers over the processing fees charged by credit-card companies.

The code, among other things, implements rules to ensure merchants receive a minimum of 90 days notice of any fee increases. Store owners will be allowed to cancel their contracts without penalty following notification of a fee increase.

It also states that merchants must agree in writing to new products or services.

The code will also help merchants control costs and pass those savings onto customers, Flaherty said.

The Retail Council of Canada has estimated credit-card fees cost Canadian merchants about $4.5 billion a year. Critics say such charges wind up in the costs of goods and services sold to consumers.

Laurie Campbell, executive director of Credit Canada, said she's skeptical over whether shoppers will actually notice lower prices. "I think it is mostly for the merchants and I don't think it's a bad thing. This is a type of regulation that needs to happen. Even though it's voluntary at this time, I think it's a good code of conduct," she said.

The NDP critic for consumer protection said there's no teeth to Flaherty's proposal because it's voluntary. "The intention is there, but it's disappointing that it's not mandatory," said New Democrat MP Glenn Thibeault. Thibeault said he would like to see legislation to protect small businesses and consumers. He would like to also see more on the consumer side. "There's nothing here to talk about the exorbitant interest fees, charges and hidden fees that consumers have to pay to these credit-card companies," Thibeault said.

Credit score falling? Insurance rates may be raising

by Wendy Mesley of CBC Marketplace, April 9th, 2010

When Dave Frederick's home insurance premium came up for renewal, he got a nasty surprise. The new rate on his Blenheim, Ont., home almost doubled, so he set out to find out why. You might be surprised by what he discovered.

Like many Canadians, Frederick lost his job in the recession. He's recently had to declare bankruptcy, but has managed to hold onto his house. He says he's never missed an insurance payment. When he asked his insurance company why his rate hike was so high, they told him they now factor in your credit score when determining your premium.

Plenty of Canadian insurance companies have started using credit scores to help set your rates, saying the lower your score, the more likely you are to make claims. Just say you lose your job -- you might hold off on fixing your roof. There's a bad storm, and your roof leaks. You're more likely to make a claim. Frederick says it doesn't make sense. "I'm not going to start making claims because I'm unemployed. I mean, it makes me no money."

It doesn't make sense to most people. A Marketplace poll conducted by Vision Critical found 87 per cent of Canadians don't think insurance companies should be using credit scores. About the same number polled didn't know insurance companies were checking them out.

So, are you paying higher rates because of your credit score? Here are few things to check:

• Check your insurance rates. Have they jumped recently? If so, your credit score could be the reason.

• You can check your credit scores with companies such as Equifax or TransUnion. If your score seems low, ask why. The agency might be able to suggest ways of improving it.

• Ask your insurance company if it uses your credit score as a factor in determining your rate. Not all companies do, so if you're not happy with the practice, shop around.

Watch Wendy Mesley's report, "Rate Hike Outrage," which aired April 9^th, 2010 on CBC Television

Subprime alive here .."orphaned mortgages" begin to surface

Financial Post, April 10^th, 2010 by John Greenwood

Rod and Joyce Marentette bought their house in Chatham, Ont., a month before getting married in 2005. The economy was booming and credit was plentiful, so even though they didn't have a down payment and Rod had recently gone through a bankruptcy, there were plenty of mortgage companies willing to lend to them. The house was $98,000 and with the additional legal fees the total price came to $100,000, all of which they were able to borrow from the mortgage company. Things took a turn for the worse when Rod, who is 39, suffered a workplace injury and had to leave his job as a factory supervisor. But Joyce, 40, was determined to hold on to the house, taking on extra work to make ends meet. When Rod finally recovered two years later, he found a new job with a construction company. While the paycheque was lower, it took the financial pressure off. That's when they got the call from the mortgage company. It was the year the credit crunch hit. The economy was in a tailspin and lenders around the world were scrambling for liquidity. The mortgage, they were informed, could not be renewed and as the company was closing its subprime business, they would have to find another lender. But the little lenders who had been so eager for their business back in 2005 had disappeared. That left the big banks and insurance companies, but they wouldn't lend either and the Marentettes quickly realized their dream of owning a home was about to become a nightmare. It ends up that despite its squeaky-clean financial image, Canada does indeed have its own subprime-mortgage mess. Industry insiders say that over the next few years the Marentettes' story will play out over and over again across Canada, as an estimated 30,000 so-called "orphan mortgages" reach maturity. Unless the government takes action, this may trigger a flood of foreclosures. In the wake of the financial crisis, the business of subprime loans has dried up. Prior to 2007, there were at least a dozen subprime lenders in Canada and it was the fastest-growing sector of the entire mortgage market, says Benjamin Tal, senior economist at CIBC World Markets, who pegged it at about 5% of the total market. But most of those lenders, including players such as Xceed Mortgage Corp., GMAC Residential Lending and Wells Fargo, have either changed their business or closed up shop. Meanwhile, the rules around home loans have been tightened. Earlier this year, the federal government raised the minimum down payment required for Canada Mortgage and Housing Corp. insurance. The mortgage industry clearly has a problem on its hands. "This thing is a wave and it's just starting," says Eric Putnam, formerly with a subprime lender, now managing director of Debt Coach Canada, a company that provides financial and bankruptcy advice to consumers. Estimates vary on the total value of the subprime market in Canada. No one knows for sure how big it really is because there is no central database tracking these mortgages. But according to Ivan Wahl, chief executive of Xceed, one of the biggest players in Canada until it recently converted to a bank, the subprime market in this country grew to about $11-billion in 2006, the year before things started to implode. Given that the total mortgages outstanding in Canada amount to around $1-trillion today, the subprime portion is not a huge slice. But the vast majority were made toward the middle of the decade with terms of three and five years and they're coming due over the next two years. "Given the current environment it will be very difficult to finance these [people]," says Mr. Tal, who calls it "a big problem for specific borrowers but not one from a macro perspective." But the industry is so concerned about the situation that it recently approached the federal government with a request for a bailout. According to Mr. Putnam and others, it wants the federal government to participate in a $1-billion fund to help finance the coming flood of orphan mortgages. During the credit bubble, subprime lenders funded themselves through the asset-backed commercial paper market.The loans they made were packaged up and sold to securitization pools and then to investors in the form of ABCP. But when the commercial paper market froze up in the financial crisis, lenders were suddenly left without a way to fund their businesses. "Investors are no longer willing to continue on and these mortgages were not insured by the Canada Mortgage and Housing Corp., so the borrowers are not going to be able to move to another lender in today's environment," Mr. Putnam says. The definition of subprime depends on who you ask, but for practical purposes the term generally refers to high-interest loans made to people who are unable to get a better deal at one of the big banks. Many such borrowers are simply self employed entrepreneurs but a good part are people with bad credit histories. In the United States, the subprime market took off in the run-up to the crisis, growing to more than 20% of total mortgages outstanding as the loans were packaged up into complex securities and sold to investors around the world. When real estate prices finally started to crumble the value of the securities cratered, ultimately destabilizing the global financial system. Analysts say it's difficult to draw comparisons between the U.S. subprime market and what happened in Canada. The market here never grew to more than a sliver of the total and, more important, the type of loans offered by Canadian players were more conservative than those offered by their peers south of the border. But there are nevertheless some disturbing parallels between the two markets. "Compared to what was going on in the U.S., it never got to the same level here, but having said that, they were going down the same slippery slope," says Mr. Putnam. "Canadians wanted to buy a home, that was the No.1 goal. "People were taking on high debt loads, stretching the amortization out as long as possible and the lenders were looking at all the opportunities. It made sense when the market was hot, but of course, no one could foresee the problems." Exacerbating the situation, the early part of the decade saw the arrival of a number of U.S. players looking to get in on the Canadian market. Because many of the players were not deposit-taking institutions, they qualified for looser regulations than banks and other traditional players.That meant, for instance, that they didn't need insurance for risky loans and they could lend in excess of the value of the property. Borrowers loved it at the time but in today's post-crisis world, such loans are almost impossible to renew. The good news for the Marentettes is that they succeeded in finding a new lender, though they're still paying almost double the interest rate of a conventional mortgage. Thousands of other subprime borrowers may not be so lucky. "Hopefully, if they have been making their payments, they can qualify for [another mortgage]," says Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals.

Watch Bond Market For Rate Hike Clues

Financial Post, April 5^th, 2010

Anyone caught off-guard by mortgage rate hikes by five of Canada's banks during the last week of March probably wasn't paying attention to the bond market – and, let's face it, that means most people.

A common misperception is that mortgage rates follow the Bank of Canada's overnight lending rate. While it's certainly true that we've seen historical lows in both over the last few months, the central bank only affects variable mortgage rates. Fixed-rate mortgages are affected by government bond yields, which have been trending upward for the past six weeks. The reason? Bond traders are expecting the Bank of Canada to either raise rates sooner than the planned date of July 20 or be more aggressive in raising them than previously anticipated. Typically, the bond market moves two to four months before the Bank of Canada does.

"The bond market is a live market that can change and fluctuate constantly, but they typically move in anticipation of events, not the events themselves," says Peter Kinch, a Vancouver-based broker. "It's almost like a speculative market."

Another reason behind the increase, says Benjamin Tal, senior economist at CIBC World Markets, is that U.S. government bond yields are rising and that often impacts Canada's bond yields. "Long-term rates in the U.S. are going up primarily because of the fact that people are becoming concerned about the ability of Obama to fund the debt," says Mr. Tal. "Unfortunately, you and I are paying for Obama's healthcare program in a way."

That won't make anyone looking for a mortgage feel better. Almost all the major banks boosted their five-year mortgage rates by 60 basis points to 5.85%. Mortgage rates generally rise at a one-to-one ratio with bond yields, says Tal, and the benchmark five-year government bond yield on March 29 was 2.9%, up about 50 points since Feb. 8 and a 17-month high.

Banks like the difference between the five-year bond yield and their best - not the posted - five-year mortgage rate to be between 90 and 110, says Mr. Kinch (although others suggest the spread is 125 to above 135. That spread is the profit between what banks can secure money at and what they can sell it at in the form of mortgages.

Mr. Kinch says it's not necessary to understand the intricacies of how bond markets work to figure out where mortgage rates are heading, just pay attention to patterns in yield changes, which are readily available online. When the spread between bond and mortgage rates goes too high, banks bring their rates down, and when the spread dips, they increase them. Since 1980 there has been a 97% correlation between the two rates on a monthly basis.

"The spread was either getting too close to 90 or may have slipped below 90, and since they were anticipating a further increase in bond yields, they priced in a 60-basis point increase to give them a buffer and create a bigger spread," says Mr. Kinch. "If they were wrong in their predictions, they will adjust them next week."

Mr. Kinch believes a 25-point rise in the overnight lending rate, maybe as soon as April 20, is more likely than something dramatic. That would give Bank of Canada governor Mark Carney a chance to assess any fallout before raising the rate again. However, if it looks like he'll stand pat, bond yields will likely come down, followed by mortgage rates.

Even though bond yields change almost every day, mortgage rates don't because that would cause consumer confusion. "Banks will move when they feel the increase is not a one-off thing," says Mr. Tal. "They don't want to drive everyone crazy with changing mortgage rates."

Banks are also more likely to respond quickly to rising bond yields than they are to dropping yields, according to a Bank of Canada study in 2009 called Price Movements in the Canadian Residential Mortgage Market. That's partly because banks generally offer 60 to 120-day rate guarantees and early payment options, both of which cost the lender if rates rise. There are exceptions, especially if banks sweeten the pot to buy customers with lower rates. For example, bond yields on March 9 went up, but mortgage rates at RBC and BMO actually fell.

Those days would seem to be over for now, but there could be 20- to 30-point dips in mortgage rates even as they generally rise, says Mr. Kinch. "You'd be foolish to expect rates to go back down again," he says. "The rates we saw last week, I'd be surprised if we see those again maybe in our lifetime."

Mr. Kinch was advising people to lock into low five-year rates earlier in March after noticing the steady rise in bond yields, but notes that rates are still near historic lows. Jittery first-time homebuyers looking for security should take a fixed five-year mortgage, but consumers comfortable with a variable mortgage can find rates at less than 2%. However, Mr. Kinch recommends boosting the monthly payment to a level that would be similar to a 5% fixed rate. That accelerates debt repayment and helps adjust for higher rates down the road.

Consumers Confident But Tapped Out

CBC, April 1^st, 2010

Canadians are likely to put the brakes on spending this year, according to a new index by CIBC World Markets that measures consumers' ability to spend versus their willingness to do so.

The Consumer Capability Index anticipates lowered spending because of the expected rise in interest rates and the fact a large part of consumption has been driven by cheap credit in the past decade.

"Growth in real disposable income has been trending downward over the past year, and to a certain extent debt is replacing income as a major driver of consumer purchases," Benjamin Tal, senior economist at CIBC World Markets Inc., said Thursday in a news release.

Tal compared the Consumer Capability Index with the Consumer Confidence Index, which is measured monthly by Conference Board of Canada. He found the average gap between the two measures during the 1990s was minimal. Consumers were confident about the economy and had the ability to spend.

However, increased reliance on credit and surging real estate prices over the past decade has changed that paradigm. Consumer confidence is up, but these days, households strapped with record debt levels are tapped out.

The Bank of Canada has indicated it will raise base rates early this summer from historic lows. And this week significant rate hikes were announced for mortgages."The practical implication of the reduced consumer capability is that consumer spending will disappoint in the coming 12 months," Tal said.

CIBC's Consumer Capability Index looks at seven key macro-economic factors to measure the ability of Canadian consumers to continue spending.

Debt-to-income ratio.
Debt-to-asset ratio.
Real income growth.
Long-term unemployment rate.
House price to income ratio.
Personal saving rate.
Personal bankruptcies.

The CIBC report found that the household debt-to-income ratio in Canada has continued to climb. As of December 2009, the ratio was accelerating at a rate not seen since the mid-1990s.

The rising importance of debt as a determinant of consumption can be seen in the fact the 2008-09 recession was the first economic contraction on record to show overall expansion in real household credit, again demonstrating the effectiveness of Canadian monetary policy, the CIBC report said.

"On the other side of the equation, the recent improvement in the saving rate since 2008 is a positive development, since savings can act as a buffer between the economic downturns and individual finances," Tal said.

Read the CIBC report here.

Housing costs through the roof

New report says many Canadians struggling to pay for both shelter and necessities

By The Canadian Press Wed. Mar 31^st, 2010

OTTAWA — A gap in the supply of affordable housing has left one-fifth of Canadians struggling to afford the homes they live in and there’s a risk that number could rise as mortgage rates increase from historic lows. A Conference Board of Canada report released Tuesday, dubbed Building from the Ground Up, concludes 20 per cent of Canadians can only keep a roof over their heads by cutting costs in ways that could harm their health — such as buying less nutritious food. The Conference Board defined housing costs as unaffordable if they exceeded 30 per cent of pre-tax income.

The report comes as CIBC and National Bank announced they were following the move of other major Canadian banks in raising mortgage rates by more than half a point ahead of an anticipated spike in the Bank of Canada’s lending rates this summer. The biggest increase at five of Canada’s largest banks affects five-year mortgages. All are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.

The rise in rates signals the end of an era of historically low borrowing costs that have contributed to an overheated rebound in the housing market, with some consumers taking on dangerously high debt loads. The end to rock-bottom interest rates could pose a major housing affordability risk to those who have overextended themselves to get into the housing market, said Tom Carter, a University of Winnipeg professor and the Canada research chair in Urban Change and Adaptation. Meanwhile, he added, income levels have remained relatively flat. "There’s a lot of people who didn’t have to put very much down," Carter said. "Mortgage rate lending has been fairly flexible in recent years, but they still have very high mortgages and when the rates go up we are going to have more people with a serious affordability problem."

If the current bank prime rate of 2.25 per cent rises by 2.5 percentage points — an average increase during a rate-rising cycle — a homeowner with a variable rate could pay about 30 per cent more in mortgage costs per month, according to experts.

The Bank of Canada has kept its key overnight rate at a historic low of 0.25 per cent for more than a year to help stimulate the economy, but rates could rise by 75 basis points by September as the central bank moves to fight growing inflationary pressures in the economy.

Meanwhile, high construction costs have led developers to focus on building homes that are affordable to people in higher income brackets, leaving a large segment of the population underserved, the report found.Carter said there is also a severe affordability problem for renters because the number of rental units in major cities is declining as developers build condominiums instead of apartment units.

Carter said there could be more defaults on loans and more home foreclosures in the coming year, but added most people will scrimp on other spending to pay off their mortgages or rents, posing a risk to Canada’s economic recovery.

"If people really have to cut back in other areas to make their housing payments, its going to affect consumer spending overall," he said.

Canadian banks boost mortgage rates

Monday March 29^th, 2010 Globe and Mail

Three of Canada's largest banks are raising rates on some fixed-rate mortgages, a reminder that mortgage rates can go up before the central bank's key interest rate does.

The move comes as many Canadians with variable-rate mortgages have been anxiously watching for signs of exactly when the Bank of Canada will begin hiking interest rates, in a bid to wait and lock into a fixed-rate mortgage at what they hope will be the ideal time.

Royal Bank of Canada the country's largest bank, said Monday morning that it is raising the rate on three-year closed mortgages by 0.20 percentage points to 4.35 per cent. The four-year closed rate will increase by 0.40 to 5.34 per cent, and the five-year closed rate will rise by 0.60 percentage points to 5.85 per cent. RBC's Canadian mortgage portfolio amounted to about $148.5-billion in the latest quarter.

A short time later Toronto-Dominion Bank followed suit, saying it is raising its three-year closed fixed-rate mortgage rate by 0.40 percentage points to 4.70 per cent, its four-year rate by 0.40 percentage points to 5.34 per cent and its five-year rate by 0.60 to 5.85 per cent. Laurentian Bank also announced it would raise rates.

A spokeswoman for Royal Bank said that fixed-rate mortgages tend to move when bond yields move. “The rates are tied to our funding costs, which change day to day,” she said. “Our long-term funding cost has gone up significantly since December.” The biggest increase announced Monday affects five-year mortgages. All three banks are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.

A homeowner taking on a mortgage of $250,000 at the new posted rate of 5.85 per cent over a 25-year amortization period would pay $1,577 per month. Prior to Tuesday's hike, that mortgage would have cost $1489 a month, or $88 less.

Sal Guatieri, a senior economist at Bank of Montreal, said the driving force behind the change in Canada's bond market is the notion that the Bank of Canada might need to raise interest rates sooner than previously thought. The market's expectation is pushing up bond yields.

Mr. Guatieri still believes the central bank is on track to raise rates in July, but he acknowledges that further strong economic reports could cause the bank to move sooner.Rising rates present a dilemma for many homeowners who face decisions about whether to lock variable rate loans into fixed terms or ride it out and hope that rates will come down again in 2011 as the economy slows and inflationary pressures subside.

Potential homebuyers entering the market also must consider rising rates when they decide to bid on a house. Is it better to wait until rising rates have cleared out some potential bidders or will a flurry of buyers and sellers spooked by the prospect of higher mortgage costs affect the supply-demand balance?

Historically, staying short-term and flexible has been the best strategy, but banks usually advise that locking in at still-attractive longer-term rates of five years and more is always a good bet for many consumers who want to ease their risk.

If the current bank prime rate of 2.25 per cent rises by 2.5 percentage points to 4.75 per cent, a homeowner with a variable mortgage should expect to pay about 30 per cent more on their monthly mortgage, says Robert McLister, a mortgage planner and editor of the Canadian Mortgage Trends website. “If that causes you discomfort then perhaps a fixed rate's where you want to be and if a fixed rate is where you want to be...if you're closing in the next six months, I suggest people do that quickly.”

Generally, long-term fixed rates rise by about half of the variable rate, he said.

While the fixed versus variable decision is specific to each individual, Mr. McLister said if prime rates spike by more than 2.5 percentage point, odds are good homeowners will save money in a five-year fixed rate mortgage.

Potential homebuyers should get their pre-approval applications in fast and expect delays in pre-approvals due to increased application volumes, he said. And homeowners' with mortgages up for renewal would also be wise to lock in rates as far in advance as possible.

Mr. McLister said its difficult to tell if the bank prime rates will rise by 2.5 points, but he added the banks have embarked on a cycle of rate increases and rates in the near and medium term will continue to rise before falling again. “They came down in the most recent rate cutting cycle by 4.25 (percentage points), so going up about half of that is definitely achievable,” he said.

Mr. McLister added that most economists expect a half to one point increase in banks' prime rates by the end of this year. But using recent history as a guide, its not likely rates will rise much higher than 2.5 per cent.“When the rates go up three (percentage points) or so they don't stay there and go in a flat line. They go up and they go down.” Banks are competing more aggressively for mortgage clients than ever, but Mr. McLister noted that consumers should expect other banks to follow RBC and TD in the days ahead as banks often move rates in unison.

CIBC chief economist Avery Shenfeld said mortgage rates hikes are a trend consumers should expect to continue. “Once the Bank of Canada starts pushing up short-term interests rates, and even in anticipation of that, it tends to spill out across the rest of the curve.” He predicts the Bank of Canada will gradually raise key lending rates this summer, resulting in an increase of 0.75 per cent to one per cent by the end of the third quarter.

That would raise the average prime rate at the banks from 2.25 per cent to three per cent, which could tack on three-quarters of a per cent to the rates of homeowners with floating mortgage rates, Shenfeld said. “Consumers are forewarned that when they look at borrowing today they have to factor in potentially higher costs,” he said. “Consumers have to be aware in taking on debt at historically low interest rates that down the road they will be higher and have to leave room for their ability to pay those higher rates.”

When the Bank of Canada lifts rates, part of its intention is to take the fire out of the most interest sensitive segments of the economy, including the housing market, which has seen a particularly strong recovery, Mr. Shenfeld said. The hot housing market is being driven, in part, by an influx of consumers willing to pay a premium for home ownership before interest rates rise. Mr. Shenfeld said the rate increase could help dampen the house price inflation seen over the past several months.

Gregory Klump, chief economist at the Canadian Real Estate Association, said even though mortgage rates are rising, they are still historically low. “Even with interest rates expected to rise over the second half of this year, it's going to be a while before mortgage rates are basically neutral. Even with interest rates rising they're still going to be stimulative, just not as much.” “We're coming off emergency level rates, and clearly the emergency has passed.”

2009 records highest number of bankruptcy filings and proposals to creditors in Canadian history

From Superitendent of Bankruptcy Office, Government of Canada, March 2010

Consumer Bankruptcies were up 28.4% in 2009 compared with 2008 (116,381 in /09 vs 90,160 in /08 ).

Business Bankruptcies were down by 12.1% in 2009 compared with 2008 (5,420 in /09 vs. 6,164 in /08).

Proposals to creditors were up by 38.5% in 2009 compared with 2008 (36,640 in /09 vs. 26,460 in /08 ).

Total Insolvencies were up by 28.6% in 2009 compared with 2008 (158,441in /09 123,234 in /08).

To read the statistics by city and province visit the official Government site here

Bank-Credit Union Rivalry To Go National

From Globe and Mail, March 6^th, 2010

Canada's banks face vigorous new competition when credit unions are allowed to operate on a national basis for the first time.The federal budget revealed Thursday that Ottawa plans to introduce legislation to let credit unions, which now function only as provincial entities, incorporate and operate nationwide. This will prompt some credit unions that have become important players in their home regions to break out and claim market share across the country.

Being confined to individual provinces limits expansion possibilities for many credit unions. It also means they tend to lose members who move from one province to another, and they can't serve businesses that operate across provincial borders. They also can't reduce risks by operating in regions with different economic cycles.

Allowing credit unions to expand beyond provincial borders could make them a

more powerful force in Canada's financial services sector, said Tracy Redies, chief executive officer of Surrey, B.C.-based Coast Capital Savings Credit Union one of the credit unions that lobbied for the changes for several years. "This is history in the making," she said. The new legislation - which will come in the form of an amendment to the federal Bank Act - "is good for Canadian consumers because we will be able to offer a national alternative to the typical national bank institution," Ms. Redies said

Unlike banks, credit unions are co-operatives owned by their members. They have developed a reputation for innovation and for supporting individuals and communities that banks have neglected. Coast is the second-largest credit union in Canada, with 50 branches, $13-billion in assets, and 425,000 members in southern B.C. If Coast were to launch an expansion beyond B.C.'s borders, its members would have to be consulted first, Ms. Redies said.

B.C. is home to the most powerful credit unions in English Canada, including the biggest, the 59-branch Vancouver City Savings Credit Union. But it is not just the large credit unions that want to consider interprovincial expansion, Ms. Redies said. Some smaller ones in Ontario that serve specific ethnic groups are keen to set up shop outside their home province, and some credit unions in Atlantic Canada want to join regional networks. Others may consider interprovincial mergers.

In some cases, being provincially bound has hindered credit unions from getting at natural markets. Ottawa-based Alterna Savings, for example, serves many federal civil servants, and to reach clients on both sides of the Ontario-Quebec border it had to create a federally regulated bank subsidiary. Alterna CEO John Lahey said this was an unwieldy move.

Canadian Bankers Association president Nancy Hughes Anthony said CBA members welcome new competition, but don't want credit unions to end up with advantages the banks don't have. Regulatory standards, capital requirements and tax policy should be the same for both, she said, and credit unions should not be able to carry into a national marketplace some advantages they have under provincial rules - such as the right to sell insurance in their branches. "It's all about operating on a level playing field," Ms. Hughes Anthony said.

Canadians Have Their Say On Financial Literacy

Ottawa, February 22, 2010 – Canada’s Task Force on Financial Literacy kicked off an extensive national consultation process with the release of a consultation document exploring key issues about how Canadians make financial decisions. “Financial literacy is essential to all Canadians,” said Task Force Chair Donald A. Stewart. “It has the power to enhance quality of life for Canadians and their families – at all income levels – and make Canada stronger, more competitive and successful. The consultation document released today – Leveraging Excellence – identifies pressing issues facing all Canadians. Among the nine major themes on which Canadians will be consulted are: managing debt, saving and investing, retirement planning, and preventing fraud.

Canadians will also be given an exceptional opportunity to speak about their financial needs and aspirations, in writing, online and in-person during a series of consultation sessions across the country. Leveraging Excellence can serve as a starting point for those wishing to participate.

Between April 6 and May 13, sessions with Task Force members will be held in every province and territory – in Calgary, Charlottetown, Halifax, Iqaluit, Moncton, Montreal, Ottawa, Quebec City, St. John’s, Saskatoon, Toronto, Vancouver, Whitehorse, Winnipeg and Yellowknife.

“We need to hear from people from every walk of life, to make sure the views, values and experiences of Canadians are reflected in the recommendations we will be making on a national strategy to improve Canadians’ financial literacy,” said Task Force Vice Chair L. Jacques Ménard.

Background

Since being named by the federal Minister of Finance in June 2009, the Task Force has been examining the state of financial literacy initiatives in Canada and abroad, speaking with experts involved in financial literacy, and identifying the key issues that need to be brought to the attention of Canadians through its public consultations. Comprised of 13 members drawn from the business and education sectors, community organizations and academia, the Task Force will deliver advice, recommendations and a concrete action plan to the federal Minister of Finance by December 2010.

The Task Force defines financial literacy as, “having the knowledge, skills and confidence to make responsible financial decisions.” “Our goal is to find a way for Canada to leverage the variety of programs and resources that currently exist to the benefit of all Canadians, to identify a framework for greater collaboration and to ‘connect the dots’ in order to share or build on expertise and approaches and create a ‘made-in-Canada’ solution,” said Mr. Stewart.

Canadians can send in written submissions via fax, email or mail until March 31, participate in the public sessions or contribute to an online forum. “The Task Force wants to hear from as many interested Canadians as possible,” said Mr. Stewart. “We look forward to receiving the input of citizens and organizations as we travel across the country.” For additional information on the Task Force and its consultations visit http://www.financialliteracyincanada.com

Household Debt Reaches Record High: Report

from CBC News, February 16th, 2009

Canadian household debt soared to a record average of $96,000 last year, and more families were behind in paying their mortgages, according to a study by the Vanier Institute of the Family.

The number of mortgage payments at least 90 days late was up 50 per cent in 2009, compared with 2008, indicating that while the recession may "technically" be over, it could be a long and challenging recovery for Canadian families, the study found.

The average debt per household of $96,100 includes consumer and mortgage debt and represents an increase of 5.7 per cent from a year ago."The effects of this recession will test the resilience of many Canadian families," Clarence Lochhead, the Institute's executive director said in a news release Tuesday. "While the stock market may be up, the improvement for families will lag behind in terms of employment, increases in income, and a return of net worth."

The 11th annual study, entitled The Current State of Canadian Family Finances, stresses that personal debt is an increasing problem at the kitchen table.

The number of credit card holders who were behind at least three months in their payments was up 40 per cent in 2009.

Study author Roger Sauvé also flagged growing concern over the likelihood of a housing bubble. He noted that over the past 20 years, house prices have averaged 3.7 times household earnings but are now five times earnings, with real estate now providing 48 per cent of the net worth of Canadian households, the highest it has been in 20 years.

Another trend noted in the study is that the rich continue to get richer. Although average family incomes have risen over the last two decades, not all families have benefited equally. In 1990, the top fifth of families took in 37.1 per cent of the incomes generated by all families in the economy. This increased to 39.7 per cent by 2007.

Read more:http://www.vifamily.ca/newsroom/Media release Family Finances 2009 report.pdf

Finance minister unveils new mortgage rules needed to prevent ‘negative trends' from developing

From Globe and Mail , Feb 16th , 2010

Finance Minister Jim Flaherty Tuesday announced tighter lending standards for mortgages, saying that while the housing market is healthy and there's no solid evidence of a bubble, the moves are needed to “help prevent negative trends from developing.”

Under the new rules, all borrowers will need to meet standards for five-year fixed-rate mortgages regardless of whether they're seeking a loan with a lower rate and shorter term.Also, the government is lowering the maximum amount Canadians can withdraw when refinancing to 90 per cent of the value of their homes, from the current 95 per cent, and requiring a 20 per cent down payment for government-backed mortgage insurance on “speculative” investment properties.

“There are no definitive signs of a housing bubble,” Mr. Flaherty said. “We think we're being proactive in the three steps we're taking today.”

Scotia Capital economist Derek Holt said the tighter criteria for mortgages could cause the housing market to ``really heat up” over the next few months as buyers try to get approved before the stricter rules come into force.

``This all leads to short-term price scrambling,” Mr. Holt said in an interview, noting that the Harmonized Sales Tax due to take effect in Ontario and British Columbia on July 1 is already causing some buyers to rush into the market in a bid to close deals in advance. ``It could really heat up in the near term and then cool off in the back end of the year. With the HST in Ontario and B.C. and these changes, they have dramatically altered the home-buying decisions of Canadians.”

The three new changes to the mortgage insurance guarantee rules are intended to take effect on April 19, according to a statement.

U.S. central banker won't say when he'll hike, but centrepiece of his plan is a radical shift in the way money supply is controlled

From Globe and Mail, Feb 10th, 2010

Ben Bernanke has unveiled a sweeping plan to retreat from the historic low interest rates and easy money that helped stave off economic ruin. But the U.S. Federal Reseve Board chairman did not specify on Wednesday exactly when he'll put his exit strategy into action, warning that the economy remains too weak to shift course now. “When the time comes, we will be ready to do so,” Mr. Bernanke vowed in remarks prepared for a U.S. congressional hearing that was postponed after a second major snowstorm to hit Washington in the past week shut down the government for a record third straight day.

The U.S. economy “continues to require the support of accommodative monetary policies,” Mr. Bernanke insisted, repeating the now-familiar refrain that the Fed would keep interest rates low for “an extended period.” That means no imminent interest rate hike, and no immediate move to shrink the Fed's swollen balance sheet economists said.

The centrepiece of Mr. Bernanke's plan is a radical shift in the way the central bank exerts its clout over short-term interest rates, at least temporarily. He is proposing to gradually raise the interest rate on deposits held at the Fed – in effect, paying banks to park their cash rather than lend it to businesses and consumers. That's a move away from the Fed's three-decades-old practice of using the federal funds rate, or the rate banks charge each other for cash, as its primary tool to control credit.

The problem is that the federal funds rate has been set near zero since the recession began.

“The reason for shifting to the alternate target (at least temporarily) is quite simple,” explained Millan Mulraine, economics strategist at TD Securities in Toronto. “The Fed's ability to directly influence the fed funds rate could be compromised by the massive amount of excessive liquidity held in the system.” Morgan Stanley economist David Greenlaw said Mr. Bernanke's remarks reinforce “the notion that the progress toward an eventual Fed exit is under way.”

Indeed, few economists expect any move by the Fed to force up interest rates until next year because of the weak job market, feeble demand for credit and persistent weakness in housing. Some even say the Fed won't move at all next year. “The Fed is carefully laying the ground work to begin tightening policy, but is not expected to act for quite a while longer,” BMO Nesbitt Burns senior economist Michael Gregory said in a research note.

Stocks in the United States edged down as Mr. Bernanke's testimony reminded investors that rates will inevitably rise at some point. But financial stocks benefited because it was clear the Fed chief wasn't planning to tighten credit any time soon.

Since the credit crisis erupted in late 2007, the Fed has doubled the size of it balance sheet – to $2.2-trillion (U.S.) – in a bid to prop up financial markets. It has scooped up mortgage-backed securities and bonds issued by government-controlled mortgage lenders Fannie Mae and Freddie Mac.

Mr. Bernanke said the plan is to gradually shrink its balance sheet to more normal levels and get back to holding strictly government Treasury bills as those securities mature.And he insisted that the Fed would not sell any of those assets “in the near-term” and only after it has begun pushing up interest rates. Mr. Bernanke also laid out his preferred options for reducing its balance sheet, including reverse repurchase agreements, offering term deposits to commercial banks, and redeeming or selling securities. “Reverse repos and the deposit facility would together allow the Federal Reserve to drain hundreds of billions of dollars of reserves from the banking system quite quickly, should it choose to do so,” he said.

Mr. Bernanke did signal one near-term move, and that's a likely increase in the “discount rate” charged on direct loans to banks. The rate is currently set at 0.5 per cent, or slightly higher than the zero-to-0.25-per-cent range for the federal funds rate.

But he cautioned that it was simply part of the “normalization” of Fed lending and not a change in monetary policy.

Mr. Bernanke had been slated to deliver his remarks to the U.S. House of Representatives financial service committee and take questions from lawmakers. But with the hearing postponed, he posted his 10-page remarks on the Fed's website.

Consumer debt loads are the new concern

from Globe and Mail, Jan 31st, 2010

As rate hikes loom, the optimism that consumers felt heading into this year was short-lived, and has been overcome by nagging concerns over their debt loads. The economy is recovering its footing, thanks to consumers who provided it with a shoulder to lean on by taking advantage of exceptionally low interest rate to buy homes and other big-ticket items. But the tables are set to turn.

Policy makers are hoping that new strength in the economy will give consumers the support they need to straighten out their finances, even as interest rates inevitably begin to rise. It's an untested hypothesis. This is the first recession in which real credit, the amount of debt that people are taking on adjusted for inflation, has risen.

And growing anxiety about paying down debt suggests that the central bank's ability to fuel the economy with ultra-low rates could lose steam if consumers retract from their borrowing binge.

New figures that were released by the Bank of Canada on Friday show that the amount of consumer credit held by the country's chartered banks rose to $335.6-billion in December, up from $333.6-billion in November and from $291.7-billion in December of 2008.

The turn of a new year, coupled with a greater belief that interest rates will rise in the next six months, appears to have prompted more contemplation about debt levels.

And, as they evaluate their household finances, the majority of Canadians are worried.

Fifty-eight per cent of consumers are concerned about their debt loads, according to the January RBC Canadian consumer outlook index, which comes out today. It's the first time that that question has been added to the survey, but it's a fairly safe assumption that concern has risen.

“Canadians are clearly worried about their current level of debt,” said David McKay, the head of Canadian banking at Royal Bank of Canada. “We know that the anxiety about a couple of other things has gone up,” added Marcia Moffat, who runs Royal Bank's mortgage business. “We saw people delaying major purchases, so they did some belt tightening. They're a little less positive about the Canadian economic outlook, and they're more concerned about jobs.”

Sixty-eight per cent of Canadians expect interest rates to rise in the next six months, up from 57 per cent in the prior month. Higher rates will mean higher monthly payments on many debts, an inevitability that is spurring concern.

“We've been squeezing the consumer pretty hard as a means of offsetting the decline in external demand,” said Stewart Hall, an economist at HSBC Securities. While U.S. consumers are de-leveraging, Canadians continue to rack up debt. “We've ridden through this recession largely on the back of domestic consumer demand,” Mr. Hall noted.To transition on to a sustainable economic growth path, demand from the private sector must bounce back, along with exports. “We need to see the consumer hand off some of the responsibility for growth,” Mr. Hall said.

With a little luck, the recovery will help boost disposable incomes, allowing debt-to-income levels, which are currently at an all-time high, to recover.But some consumers are tapped out and won't be able to cope with rising rates. “Consumer bankruptcies have risen significantly over the past year, and they will continue to rise,” said CIBC chief economist Benjamin Tal. “Clearly, some people are in over their heads, and more will get into trouble when interest rates rise.”

The problem does not threaten to derail the recovery, but it will pose challenges, he suggested.“We are stealing or borrowing activity from the future,” Mr. Tal said, especially in the housing market where many consumers have felt that if they didn't act now they'd miss the boat. “It means that borrowing and real estate activity will not be as strong in 2011, and that's the price we pay for today's activity.” In evaluating the extent of the problem, Mr. Tal believes there has been too much focus on ballooning debt-to-income ratios, and too little focus on debt-to-asset ratios, which have remained relatively steady.

In fact, assets have been rising faster than liabilities since the second quarter of 2009, meaning that the net worth of individuals' is on the upswing. However, that's largely a result of surprising increases in stock markets and home prices, which gave consumer balance sheets a lift.

Canadians playing it safe with mortgage, report finds

Globe and Mail, Jan 14th, 2010

Canadian home buyers are being cautious when taking out new mortgages, a report suggests.The Canadian Association of Accredited Mortgage Professionals examined 40,000 loans issued in 2009, and found that 86 per cent of new mortgages issued were fixed-term. These are considered less risky than variable-rate terms, because the homeowner is locked in at one rate for a set amount of time, typically five years.

“The vast majority of Canadian mortgage borrowers are not taking on undue risks,” said Jim Murphy, the association's president. “They have factored rising interest rates in to their mortgage decisions.”

While variable rate loans have been available as low as 2.25 per cent (compared to 4 per cent for fixed rate mortgages, there is concern that interest rates will rise higher and make it difficult for many on variable plans to meet their rising costs.

But among the majority of borrowers who took out fixed terms, 70 per cent took terms of five years or longer. The majority of borrowers also took out mortgages below the maximum they'd be allowed under the gross debt service ratio – a figure generated by the bank that considers how much debt someone can reasonably take on. Mr. Murphy said the longer terms and borrowing less than the maximum goes contrary to the perception that Canadians are taking on too much debt to take advantage of low interest rates.

But there are some new buyers who could find themselves in trouble, according to the survey. About 4,000 households appeared to take on maximum debt along with short-term rates, said the association's chief economist Will Dunning. “Each year, about 2.5 to 3 per cent of Canadian households make a first-time home purchase,” he said. “Our data shows that only a small percentage of them are pushing-the-envelope – about 4,000 households which amounts to a tiny fraction of the 13.25 million homeowners in Canada. For those who borrowed in prior years, risks are even lower.”

The association undertook the study in response to concerns about a bubble forming in the market as Canadians take advantage of historically low interest rates to take on mortgage debt.

Canadian Household Debt A Threat

Average Canadian Carrying Record Debt-to Income Ratio

Toronto Sun , December 11th, 2009

Canada's heavily indebted households pose the biggest threat to the country's fledgling economy, the Bank of Canada said in its semi-annual report. The average Canadian is carrying a record household debt-to-income ratio of 140%, according to numbers released by the Office of the Superintendent of Bankruptcy late last month.

In spite of global policy changes, growing investor confidence and easing bank markets, historically high levels of household debt threaten the national financial system through deterioration in the quality of loans to households, the BoC reported. "When borrowing funds, especially in the form of mortgages, households need to assess their ability to service these debt obligations over their entire maturity, taking into account likely changes in both income and interest rates and the risks surrounding this outlook," it said, adding that banks have to be equally cautious.

The December Financial System Review looks at five main risk factors, including global imbalances and currency volatility, funding and liquidity, capital adequacy and global economic outlook, all of which stayed the same or decreased. Household debt was the only category where threat levels increased.

Phil Bergevin, a policy analyst with the C.D. Howe Institute, said he agrees with the bank's assessment. "Other aspects of the economic recovery are going well. The only area of concern that has not been improving since the bank's report last summer is household balance sheets," he said. Bergevin expects to see increases in personal bankruptcies, more mortgages in arrears and worsening debt-to-income ratios once interest rates climb back to near normal levels.

Canada's central bank has indicated its intention to keep the overnight interest rate near zero through mid-2010, though it's expected to rise shortly thereafter. The bank also said while Canada's fiscal position remains relatively strong, Canadian businesses, financial institutions and households could be adversely affected by red balance sheets in many countries.

Stimulus measures have left behind massive debt in major economies and that could trigger a disorderly adjustment of global imbalances and exchange rates. Canada's federal debt hovers around the $500-billion mark.

Bank funding and liquidity constraints are another source of vulnerability for the Canadian financial system, the report outlined. Canada's banks have done well to absorb unexpected loan losses by increasing their capital positions, but pressure on banks to maintain higher-than-normal capital ratios could impede banks down the line. The bank perceives the overall risk to Canada's financial system as "modestly lower."

"Orphaned" homeowners face potential foreclosure in Canada

Globe and Mail Dec 7th 2009

For the past three years, Lisa Matthews has never missed a mortgage payment – handing over $292, like clockwork, every week.

But if nothing changes, a bailiff, acting at the request of her mortgage lender, will ring her doorbell and tell Ms. Matthews, her two daughters and her boyfriend to vacate the two-storey house for good.

“This was a pure slap in the face,” said Ms. Matthews, a 36-year-old clerk with the City of Hamilton, who was recently told that, despite her perfect payment record, her mortgage will not be renewed at the end of its three-year term.

Ms. Matthews is one of many Canadians being abandoned by a breed of alternative lenders that have stopped lending to customers, who, because of poor credit scores, lower-paying jobs, or minimal home equity, couldn't obtain financing from a traditional lender, such as a banks.

Everyone from the CEO of Ms. Matthews' lender, Xceed Mortgage Corp., to senior officials in Ottawa, agree that borrowers such as Ms. Matthews, who have dutifully paid their mortgage bills, are being unfairly stranded. What they can't agree on is how many Lisa Matthews are out there.

Records obtained under the Access to Information Act show that a lobby group representing these lenders has warned the federal government that, unless taxpayers offer help, they will be forced to foreclose on as many as 30,000 homeowners over the next three years.

These “orphaned mortgages,” as the industry is calling them, are held by customers who have impeccable payment histories.But they can't be renewed because the credit crunch has shut off the funding pipeline of non-bank lenders, the lobby says.

This wave of forced sales and evictions will hit its crest this coming year when nearly half of these mortgages – most of which were issued during the real estate boom of 2007 – will not be renewed, the mortgage lenders ssay. Executives with alternative mortgage companies say they cannot renew the stranded mortgages because the once-thriving securitization market that attracted investors to these risky – and lucrative – mortgages collapsed in the wake of the U.S. subprime mortgage crisis. To replace the lost pool of capital, lenders are asking the federal government to back a special billion-dollar fund that would renew the healthy mortgages of borrowers who do not qualify for loans from traditional lenders.

Finance Department officials, however, have responded to the lobby group's alarm bells with caution and questioned their estimates, according to sources close to the negotiations. These sources say Ottawa is frustrated that some of the companies in this small segment of the Canadian mortgage market have been unwilling to hand over data so the problem can be fully assessed, one source said.“The government thinks this group is asking for help for itself,” said the official close to the talks, which bogged down this summer. “Had they been willing to co-operate with the government and provide that information, some sort of program could have been designed. But you can't design a program on anecdotes.”

The roots of the problem can be traced back to the housing and lending heyday of half a decade ago, when an assortment of “non-conforming,” or subprime mortgage lenders launched operations. Some, such as Xceed and Mississauga-based N-Brook Mortgage Group Inc. had roots in Canada, and others, such as San Diego-based Accredited Home Lenders, migrated from the saturated subprime market in the United States.

Many of these mortgage companies aren't federally regulated so, unlike a bank, they aren't required to insure mortgages when the down payment is equal to less than 20 per cent of the value of the home. And unlike banks, they could – and often did – give loans to people who couldn't afford a down payment. After extra fees were piled on, some of these mortgages added up to as much as 104 per cent of the value of the house being purchased. Interest rates hovered as high as 11 per cent.

Within a few years, this sort of lending started to explode and the new players quickly took hold of 5 per cent of the Canadian market.

But when the financial crisis struck last year, and “subprime” became a dirty word, the pension funds and investment banks that these companies relied upon to fund their mortgages, spurned them. Investors that previously had a ravenous appetite for securities backed by high-risk mortgages were now demanding their money back from companies like Xceed. These investment windows are closing at a time when thousands of mortgages, like Ms. Matthews' loan, are coming due.

Few of the low-income borrowers who were targeted by alternative lenders gave much thought to where their mortgage money was coming from. “The way we understood it, as long as our mortgage was paid, they would just renew it. The joke was on me,” said Joyce Marentette, a cook in Chatham, Ont., who was also told last year by Xceed that she would have to find other financing, when her three-year term came up.

The problem is more acute in depressed areas such as Southwestern Ontario and parts of Alberta, where there are fewer private financiers and property values have sagged, industry insiders say. Mortgage brokers in Ontario cities such as Windsor, Chatham and St. Thomas say they regularly receive frantic phone calls from homeowners who are shocked to receive a letter explaining that their mortgage won't be renewed. “We're not talking about a scoundrel that brought it upon himself. … These are people that didn't do anything wrong,” said Joel Katz, a Windsor mortgage broker. Mr. Katz said he believes the issue isn't on the government's radar because this type of lending accounted for such a small segment of the market compared with the United States. “The problem wasn't as big here, and there are people who are getting stepped on and overlooked.”

But exactly how many people are being “stepped on?” Public records in Canada are so scarce, it's impossible – even for lawmakers – to know for sure. Ottawa relies on Canada Mortgage and Housing Corp. for data, but because none of these subprime players insured their mortgages through CMHC, the public agency knows very little about their state of their books. One source close to the Finance Department said officials at the Crown corporation figure that stranded borrowers account for only “a tiny sliver” of the country's homeowners.

Paul McGill, president of mortgage provider N-Brook and spokesman for the mortgage lenders lobby, argues Ottawa is understating the problem. He said he has supplied federal officials with data showing that $1.7-billion of healthy mortgages could be stranded and that these borrowers lack high enough credit scores to qualify for loans from more conservative lenders. Mr. McGill said federal officials responded by asking mortgage lenders to supply extensive borrower details such as marital status and garage dimensions. Mr. McGill said the requests would have cost too much time and money to fulfill. Lenders have scaled back their proposal to call for a $1-billion Ottawa-backed fund that could renew stranded mortgages. He said Ottawa has not been supportive.

In response to questions, the Finance Department issued a statement saying: “The government is monitoring housing and mortgage markets in order to ensure they remain stable, strong and competitive.”

Far away from the push and pull in Ottawa, Ms. Matthews has put her house up for sale. A handful of prospective buyers has wandered through, but she has received no offers. A few weeks ago, she received a letter from Xceed's lawyers, explaining that she owes the company nearly $128,000. This means that, despite paying Xceed about $40,000 over the past three years, she now owes $1,000 more than she originally borrowed.

When she opted to buy her first home, she had to get over the hurdle of her low credit score. An unpaid student loan had caught up with her. She had no down payment, and paid a 9.15-per-cent interest rate with Xceed. “I just thought they were my foot in the door,” she said.

Ivan Wahl, Xceed's CEO, said his company has identified 1,100 borrowers that his company will maroon over the next three years. For those people “it is an absolute disaster,” he said. Despite his sympathy, he says he is contractually obligated to pay Xceed's investors, which means demanding full payment at renewal time. “The government certainly should step up to the plate to provide some facilities for people who got caught in the crunch.”

Ms. Matthews said she doesn't expect the government to do anything for her, and is reserving her frustration for Xceed. She said the companies involved should be giving their customers more warning about their inability to renew. She received a warning letter 31/2 months before her mortgage matured. “If I knew it was going to end like this, I never would have done it.”

Be careful, low rates won't last, says top banker

Toronto Star October 23, 2009

Bank of Canada Governor Mark Carney is warning homebuyers against taking on too much debt because today's low interest rates will not last forever."People should manage their affairs prudently in anticipation that, at some point, rates will return to a more normal level," Carney said after releasing his quarterly economic review.

"Obviously, rates are exceptionally low," he said, noting that the central bank has used its interest-rate-setting influence to drive down consumer borrowing costs to record lows to help stimulate economic activity.

At the same time, Carney said, the bank has "given pretty clear guidance on how long we expect they (interest rates) will have to remain at these levels. People should manage their affairs for a longer horizon." He reaffirmed his promise that, barring an outburst of runaway inflation, the bank will keep its trend-setting overnight rate at 0.25 per cent until next summer. Assuming the economy is recovering by mid-2010, the bank is expected to begin raising rates.

The bank now estimates that Canada's economy will shrink by 2.4 per cent this year before rebounding with 3 per cent growth in 2010 and 3.3 per cent in 2011.Carney said the housing market is showing strength and he has "some concern" that low rates and increasing demand by homebuyers could create an artificial price bubble of the kind that plunged the United States into a severe recession when it burst in 2007.

But the debt burden in Canada has not reached the alarming levels faced by U.S. consumers before the recession, he said.

"Canadian consumer balance sheets are starting from a much stronger position than U.S. consumer balance sheets" were in ahead of the economic downturn, Carney told reporters.

The quarterly review indicated the economy is on the mend but the recovery is being slowed by the unexpectedly strong value of the loonie on exchange markets.

Carney, who said Canada's currency is being driven by investors bailing out of the U.S. dollar, kept up what appears to be an effort to throw speculators off balance.

"Intervention is always an option," he added.

"Markets should take seriously our determination to set policy to achieve the (2 per cent) inflation target. Markets sometimes lose their focus. We don't lose our focus."

The bank governor did not give specifics on how it might take the unusual and risky step of intervening.

On Tuesday, by repeating his pledge not to raise interest rates until next summer, Carney seemed to have succeeded in catching markets off guard, with the loonie dropping nearly two cents against the greenback.

CIBC World Markets economist Avery Shenfeld said Carney seems to be engaged in talking down the value of the loonie. "By dampening expectations for early interest rate hikes, he's taken a little bit of a shine off the Canadian dollar." On Thursday, the dollar shed 0.16 of a cent (U.S.), closing at 95.44 cents.The bank said the loonie has established itself on exchange markets at about 96 cents, much higher than the 87 cents forecast by Carney a few months ago. If investors keep shying away from the U.S. dollar, a rising Canadian dollar could "act as a drag on growth" in Canada, he said, especially if consumer and business demand takes longer to rebound globally.

Pending New Credit Card Regulations Rankle Bankers

Toronto Star, Oct 1, 2009

New credit-card regulations will end up costing Canada's banks "hundreds of millions of dollars" and could leave consumers feeling even more confused about their bills, the head of the Canadian Bankers Association says.Nancy Hughes Anthony also warned Wednesday that implementing such complex regulations within a "compressed timeframe" could lead to other unforeseen consequences, such as less consumer choice and reduced credit availability."It is very expensive for banks to put this in place," Hughes Anthony said in a telephone interview.

Regulations aimed at beefing up disclosures – such as a new customized calculator requiring banks to inform consumers how long it would take to pay off their bills if they make only the minimum monthly payment – are "hellishly complicated" given that 68 million card statements are mailed out each month.Moreover, the added information "is going to end up being potentially more confusing for the consumer, than it is enlightening," she said.Banks may also react to the extra costs by reducing the number of products they offer. Fewer card options could result in less credit availability for consumers.And the new paperwork burden for credit limit increases could make banks less flexible about granting on-the-spot hikes. The new rules require expressed consent from cardholders. If the consent is given orally, banks must provide written confirmation of that consent in short order."If you're ... in Ikea about to buy a sofa and your card bounces, then I'll hope you'll understand that's as a result of these new regulations," Hughes Anthony said.

Finance Minister Jim Flaherty said the majority of new rules would come into force on Jan. 1. He did cut banks some slack on one key provision – a 21-day grace period on new purchases when consumers pay an outstanding balance in full by the due date – by delaying its implementation until Sept.1, 2010.

The new rules, first announced in May, also require a "summary box" on credit contracts and application forms that clearly explains features such as interest rates and fees. Also required: Advance disclosure of interest rate increases and limits on certain debt collection practices, along with other measures.

Opposition critics dismissed the regulations as a toothless information campaign. "Notification that your interest rates are going up doesn't provide any real help to consumers," said Liberal consumer affairs critic Dan McTeague.Consumers, he said, should be given the right to "opt out" and choose a lower-rate product, such as a line of credit, if slammed with higher costs."We're completely missing the boat on what's really hammering Canadians in this economic downturn – these high interest rates and, of course, all of these excessive fees," said Glenn Thibeault, the NDP's consumer protection critic. He wants credit-card interest rates capped at five percentage points above the banks' prime rates.

A leading consumer group said the proposals are good as far as they go but is expecting to see more after recent meetings with Flaherty.Bruce Cran, president of the Consumers Association of Canada, declined to say what additional measures the group is hoping the minister will introduce."We've been in touch with Mr. Flaherty and his staff to add more items to the list which we believe we'll see in future," Cran said.

Retailers and small business operators say they welcome measures that protect consumers but are still waiting for Flaherty to do the same for them.The business owners say the fees they pay to accept credit cards hit $4.5 billion last year and are spiralling out of control. They also fear the same thing is about to happen to debit as Visa and MasterCard enter that market."We're hoping the minister will also consider looking at taking similar steps in relation to the banks and their credit card practises and merchants," said Diane Brisebois, president and chief executive officer of the Retail Council of Canada.

Young Canadians saving less than their parents

Canadian Press, Sept 30, 2009

Young Canadians are saving less than their parents and grandparents did at the same age, with young men being the worst at sticking to a budget, according to the results of a new survey.The TD Canada Trust study released Wednesday suggests 80 per cent of Canadians found saving money “too hard” and that young people between the ages of 18 and 34 were more interested in saving for a house than for retirement.

Among survey responses, 19 per cent 18- to 34-year-olds said they were saving 10 to 25 per cent of their total monthly income. That compared to 29 per cent of people over age 55 who said they saved that amount when they were younger.Young adults blamed their lack of savings on not making enough money, while people 55 and older said the cost of living prevented them from saving more when they were young.

TD's Carrie Russell said the results were disappointing and prove that saving money is not something that comes naturally to most.“It has to be practised,” said Ms. Russell, a senior vice-president at the bank. “And the earlier you start the better off you will be.” The survey found 54 per cent of 18- to 34-year-olds respondents said they have a rainy day fund, compared to 55 per cent of 35- to 54-year-olds and 63 per cent of those 55 and older. However, 76 per cent of 18-to-34 year-olds considered themselves financially responsible, compared to 82 per cent of 35-to-54 year-olds and 86 per cent of those 55 plus.

Weighed down by debt

Debt was said to be the biggest roadblock for young people trying to save more, in particular for men. Twenty-eight per cent of male respondents cited debt as the reason why they can't save more, compared to 18 per cent of women.Women were also better at sticking to a budget, the survey indicated. The gap was greatest in the 35- to 54-year-old range, in which 43 per cent of women said they stuck to a monthly budget, compared to 28 per cent of men.Russell said women – often cited as being big spenders – are better at budgeting because they have practise doing it at home with family finances.“They often deal with that tradeoff on what to spend money on, and what not. It's a daily decision,” she said.

Vancouver resident Jarleen Clohan, 23, said she is good at saving money, in part because she grew up watching her parents sometimes struggle with making ends meet.Ms. Clohan said she does shop, like most women, but that her spending is “controlled.” She saves money because she likes the “reassurance” of having a savings account.

Saving for a home

Armin Barekat, 32, said he doesn't feel the need to save too much money. Mr. Barekat, who lives in Vancouver, said he has a secure job and a good credit rating. He is also confident he can borrow money if needed, and pay it back. “Saving money is good, but I don't worry about it,” he said. Mr. Barekat is saving money for a down payment on a home, but hasn't started saving yet for retirement. “I am too young to think about that,” he said. The survey suggested 23 per cent of Canadians in Mr. Barekat's age group wanted to save for home. That figures rose to 25 per cent for those ages 35 to 54. Looking back to their younger years, 19 per cent of people age 55 and over said they had saved for a home, while 25 per cent said they saved for retirement.

Besides providing fresh data on Canadian attitudes, such surveys are a popular promotional tool for Canadian companies, who use public opinion polls to gauge consumer thinking and to promote specific brands to ordinary Canadians.The survey of 1,000 men and women was conducted by Angus Reid Strategies in late July. It has a margin of error of plus or minus 3.1 per cent, 19 times out of 20.

Canadian Credit Card Default Rate At Record Level

Canadian Press, Sept 24,2009

More Canadians than ever are peering into their mailboxes with trepidation as they await the arrival of their monthly credit card bills, according to new data that could portend a less than merry Christmas for many consumers and retailers alike.Moody's Investors Service, the New York-based financial rating agency, says the amount of unpaid Canadian credit card debt written off by issuers rose nearly 60 per cent to record levels in the second quarter compared with the same period last year.What's more, credit card delinquency rates - the number of accounts 30 days past due - rose 23 per cent in the April-June period versus last year.

"My opinion is that it's going to be a conservative Christmas," Laurie Campbell, executive director of the credit counselling agency Credit Canada, said in commenting on the report.The not-for-profit agency, which counselled more than 60,000 people in 2008, has experienced a 22 per cent increase in new cases so far this year."What we are seeing here is definitely higher debt loads - but more frighteningly - the serious inability to pay this debt," Campbell said.Because unemployment is expected to continue to rise in the coming months and personal bankruptcies are expected to remain at historically high levels well into 2010, she sees little improvement in the near future."I'm not an economist, but I don't think it takes an economist to recognize there will be very slow, flat growth this year because Canadians have to deal with the debt they're carrying before they can start spending in any real way," Campbell said.

Moody's said the so-called charge-off rate hit a new high of 4.8 per cent in the second quarter, a 57 per cent increase from 3.07 per cent for the second quarter last year."The intensity of the current recession has led to charge-offs that have exceeded previous cyclical highs by a relatively wide margin," states the quarterly Moody's Canadian Credit Card Index.A charge off is when credit card balances are written off an uncollectable.

An account has to be written off after 180 days of delinquency, but can happen sooner.It's the tenth consecutive quarter of year-over-year increase in the index, "and sets a record high charge-off rate for the third consecutive quarter," Moody's said.It said the June charge-off rate alone was 4.96 per cent, another record, and coincides with record levels of personal bankruptcies."Trends in the unemployment rate and credit card charge-offs are highly correlated. Both measures tend to lag the general economy," the report states.Moody's is calling for unemployment in Canada to peak at 9.6 per cent in the second quarter of 2010, and for the charge off rate to also rise in the coming months, "though at a relatively slower pace than earlier in the year."The delinquency rate was 2.82 per cent in the second quarter, up from 2.29 per cent a year ago.However, Moody's pointed out that the second-quarter level dipped slightly from 2.9 per cent in the first quarter, possibly due to tax refunds received by some consumers.

So far, this deterioration in charge-off rates has not translated into any rating actions for the Canadian credit card sector.But there could be negative rating consequences for credit card asset-backed securities if charge-off rates continue to rise, according to senior Moody's analyst Sumant Inamdar, the lead author of the report.He noted that the number of personal bankruptcies in the second quarter shot up 41 per cent to 31,659 from 22,412 in the second quarter of 2008.However, Inamdar noted there have also been recent positive trends in the economy and that while "the bad news will remain elevated . . . its not going to be getting significantly worse at a significantly faster pace," he said."That's the key to what's happening going forward. The pace of deterioration is slowing down."Inamdar said another positive note was that Canadian credit card balances, while totalling $68.7 billion at the end of June, were up only slightly from $67.9 billion in January and up just six per cent from $64.9 billion in June 2008.He compared that with a $4 billion increase to $58 billion from $54 billion in the same period in 2007, for example.

Campbell said that had a lot to do with Canadians having "peaked out" on their credit."Canadians have had record debt levels and the result has been that now the chickens have come home to roost so to speak," she said."They're tapped out. They can't get more credit. The banks are shutting off the stream of credit because their losses are so great, which is one of the reasons that debt load has not increased."

New Bankruptcy/Consumer Proposal Laws Take Effect Today

Toronto Star, Sept 18th, 2009

Canadians caught in a financial bind with substantial debt will have a new escape route starting today. But changes in federal legislation will require others to keep making monthly payments longer than before, and longer than Americans with higher incomes."We do not like these changes (affecting debtors with modest incomes) because they make it more difficult for a person to get a fresh financial start," argues Earl Sands, a British Columbia bankruptcy trustee.Sands does like the fact that consumers suffering hard times will be able to make a formal proposal to repay a portion of up to $250,000 in debt, avoiding the lifetime stigma of an outright bankruptcy.

Another change could expose high-flyers who owe more than $200,000 in taxes to the bright light of public scrutiny.Changes to the Bankruptcy and Insolvency Act affecting consumers have been debated for nearly a decade, with some measures to protect wages and retirement savings brought into force last year.

The final changes to the law come into effect as Canada is emerging slowly from the worst recession in decades, with unemployment rising. The number of bankruptcy proceedings was up 55 per cent in June from a year earlier.Until now, only debtors who owed less than $75,000 and lacked enough income or assets to repay that debt could make a consumer proposal to repay 25 to 35 per cent of their loans and credit-card bills, notes Andy Fisher, a bankruptcy trustee with A. Farber & Partners.Borrowers overwhelmed by debt sometimes negotiate individually with lenders but a formal consumer proposal provides court enforcement of the terms of repayment, he said.

Using the proposal route, some debtors might be able to clear their credit report somewhat sooner than the seven years a bankruptcy stays on record.Fisher says he already knows at least one person who could benefit from the new $250,000 debt ceiling for consumer proposals. "His surplus income payments (to lenders) would have been more than $1,000 a month for 21 months under bankruptcy," said Fisher. "If he does a proposal ... he will pay $36,000 over a four-year period. So he is going to pay more to creditors, but his cash flow is improved." The proposal would be noted on his credit record for three years after he makes his last payment under the terms of the proposal. Other debtors confronting the loss of a job, a business, their physical capacity to work or other drastic circumstance may still prefer the bankruptcy option.

But, starting today, all first-time bankrupts with surplus income will have to make payments for 21 months or longer before they qualify for automatic discharge from bankruptcy. Discharges after as few as nine months will be available only to those who have no surplus income, and the definition of surplus is stringent. Sands notes three-person families would be deemed to have some surplus if their combined annual take-home pay exceeds $34,340 a year. Yet, in Washington state, a family of three with gross annual income below $69,577 could qualify for discharge in four months.

Those debtors with surplus income who declare bankruptcy a second time will have to make payments for 36 months to qualify for an automatic discharge.Those without surplus income will wait 24 months."People are going to have to pay surplus income longer than before, but even if they pay sooner, they will be bankrupt for 21 (or 36) months," said Fisher. He noted all of the family's surplus income would not be claimed, only amounts in excess of $1,200 a year and only the percentage of total income contributed by the person declaring bankruptcy.

If a bankrupt comes into extra money before being discharged – from a lottery, inheritance or bonus – the money could be claimed by the trustee in bankruptcy.

From now on, there will be no automatic discharge for those who owe more than $200,000 in taxes if the unpaid taxes account for more than three-quarters of their total debts. They must go to court to apply for the discharge, as former Liberal Party of Canada president and Toronto mayoral candidate Stephen LeDrew did in 2005.LeDrew, who had been forced into bankruptcy by Canada Revenue, objected at the time that others he knew had negotiated lesser payments than the 74 per cent a judge ordered him to pay.

The requirement to appear in court to get a discharge could produce more public exposure. It also could produce higher payments from those who use bankruptcy to avoid their tax obligations.

Earlier changes in law reduced to seven years the time before a debtor may be relieved of student loan obligations through bankruptcy.RRSPs were also protected from creditors, provided the person filed for bankruptcy. Several provinces, although not Ontario yet, have provided creditor protection for retirement savings outside of bankruptcy proceedings.

Living hand to mouth-it's not just a recession thing

TORONTO, Sept. 14 /CNW/ - Results from a new nationwide survey show that a majority of working Canadians are cash-strapped and have little ability to put money away for their retirement. According to the 2009 National Payroll Week Employee Survey, conducted by the Canadian Payroll Association (CPA) and released today, 59% of Canadian employees report they would have trouble making ends meet if their paycheque was delayed by even one week."We were shocked by that number. So many Canadians are now living so close to the line that if they miss a single pay cheque, the majority will find themselves in financial difficulty," says Janice MacLellan, Chairman of the CPA.

Financial experts recommend that people keep emergency funds totaling approximately three months of expenses (rent, mortgage, bills, groceries, etc.).By age group, the younger workforce is feeling the greatest pinch, with 45% of those aged 18-34 saying it would be difficult or very difficult for them to meet their current financial obligations if a paycheque were delayed, and a further 21% stating that it would be somewhat difficult. By household, the situation is most precarious for single parents, with 72% saying they would have some trouble making ends meet if their pay were delayed.

The survey also found that 50% of Canadian workers are unable to save more than 5% of their net pay for retirement. Financial experts generally recommend a retirement savings rate of about 10%. "Canadians are living paycheque to paycheque, and there's precious little left that they can put away for retirement".

About one-third of Canadian workers say they have been trying to save more money than a year ago because of the economic uncertainty but have been unable to do so. Another 42% say they aren't even attempting to save additional funds. Yet, the majority (52%) feels they'll need between $750,000 and $3 million to live comfortably in retirement. Those finding it most difficult to put money aside are single parents, with 65% saying they're saving only 5% or less of their net pay.

A majority of Canadians (70%) say their first priority if they were to win $1 million in the lottery would be to pay off their debt, followed by contributing as much as possible toward retirement (35%) and investing (30%) as the next priorities.

Of all regions, Quebecers would be more likely to use some of their lottery winnings to have a party (7%) than people living elsewhere in Canada (3%). Maritimers would be more likely to share their lottery winnings with family members (37%) than would the rest of the country (26%).

Cash is king for Canadians when it comes to remuneration. A whopping 65% of those who responded said it's more important that they receive higher wages from their employer, compared to better health benefits (25%), and education funding (10%).

There was also some optimism in the survey: 66% of respondents believe that the economy in their town or city will improve and most believe they'll receive modest pay increases over the next year.Over 2,800 employees from across the country participated in the survey. This survey is consistent with a margin of error of 2.3%, 19 times out of 20.

About the CPA:

Payroll professionals in 1.5 million organizations across Canada are responsible for ensuring the timely and accurate payment of $730 billion in wages and taxable benefits, $230 billion in statutory remittances to the federal and provincial governments and $80 billion in health and retirement premiums, while complying with more than 185 legislative requirements. The Canadian Payroll Association (CPA) has influenced the payroll compliance practices and processes of hundreds of thousands of employers since 1978. As the authoritative source of Canadian payroll knowledge, the CPA affects the legislative processes and practices of payroll service and software providers, as well as hundreds of thousands of small, medium and large employers. National Payroll Week (September 14-18) recognizes the accomplishments of payroll professionals and the CPA by building greater awareness of the size and scope of payroll and its impact on employers, employees and government across Canada. For further information: Rachel Sa, PR POST, (416) 777-0368, rachel@prpost.ca

Be Aware: Credit Card Companies Chopping Limits and Bumping Up Rates

Toronto Star Aug 1st, 2009

Don't be surprised to hear about changes to your credit card's spending limit or interest rate.We've had a few complaints from customers of Sears, American Express and Capital One – all U.S.-owned companies that may be more affected by the credit crisis than Canadian card issuers.

V.P. (I'm using initials for privacy) had a shock when he checked his Sears MasterCard account online.The credit limit, formerly $10,000, had been reduced to $500.Chase Canada, which bought Sears' credit card arm in 2005, said credit limits are reviewed on a regular basis. "Chase is continuously evaluating whether our customers' credit lines are appropriate for their needs and will make adjustments accordingly," spokeswoman Gail Hurdis said.

C.M. had a similar experience with her Sears credit card, whose limit was cut to $500 from $9,500."I currently have a zero balance on that account," she says "I think I was targeted because I was late with a payment of $34.74."C.M. had moved last May, which resulted in her Sears bill being dropped off at a neighbour's house. It was caught in transition before the change of address kicked in. She forgot about the $34.74 balance, which she cleared up shortly after the payment deadline. "As a careful and responsible lender, we constantly evaluate the risks and costs of funding credit card loans," Chase spokeswoman Laura Rossi said."We may lower lines for customers who are showing signs of increased risk or inactivity." To which CM replied: "In my case, their cost of funding credit card loans has been basically zero for the past few years. Maybe that's their issue – nothing to gain?"

A.V. has an American Express card with no preset spending limit. But the balance must be paid in full each month. After charging $3,663 to her Amex card last April, she got several calls about her spending. "No preset spending limit doesn't mean unlimited spending," said Jolene Price, an American Express Canada spokeswoman.

"We suggest to our charge card members that they contact us if they are planning to spend significantly out of pattern. "In Mrs. V.'s case, her spending patterns changed, and as a responsible lender, American Express followed up to ensure that she could support the increased level of spending." After more discussion with her lender, AV. told me she will cancel the card and get a partial refund of her annual fees.

Finally, S.H. has a Capital One credit card with an interest rate of prime plus 0.9 per cent. He told me that the rate is going up sixfold. Capital One will be ending its low prime plus 0.9 per cent rate because of the higher cost of doing business in Canada, spokeswoman Laurel Ostfield said. "We are switching some of our customers to our best available product (5.99 per cent annual percentage rate, fixed for three years), which is very competitive in the marketplace." This week, Capital One started notifying customers that the new rate will show up on their October statements. By Sept. 4, cardholders will have to decide whether to accept the new rate or reject it. If they reject it, they will have to stop charging new purchases to their cards. But they can pay off their current balances under the existing terms for as long as they like – as long as they make their minimum payments – until their balances reach zero. "Then their account will be closed automatically," Ostfield said.

Wells Fargo Ends Mortgage Lending in Canada

National Post , July 31st, 2009

Wells Fargo Canadian unit stopped accepting applications for mortgages yesterday at its branches and through its HomePlan broker network, Wells Fargo Financial Corp. Canada President Rick Valade said in an e-mailed statement. The company also informed brokers in a statement on its web site.“Wells Fargo continuously reviews its operations and makes appropriate changes to its business model,” spokeswoman Erin Downs said in a statement. “In response to recent analysis of our operations and the current market environment, at this time, we made the decision to stop originating consumer real-estate loan products in Canada.” Wells Fargo will honor existing mortgage commitments and will continue offering personal loans in Canada, the company said

Wells Fargo follows several other mortgage providers, including GE Money, GMAC and Accredited Home Lenders, that have stopped lending to Canadian homebuyers, including those who may not qualify for typical bank mortgages since the 2007 collapse of the financial markets. “We’ve seen a pattern of a number of namely U.S.-based lenders that have exited the field as things have become difficult in the market,” said Jim Murphy, head of the Canadian Association of Accredited Mortgage Professionals. “It’ll mean less choice, less options for Canadians.”

Forgiving of student debt tricky

Toronto Star July 4. 2009

The government has made it difficult to dodge student loans through bankruptcy.You had better have a good excuse for not paying, even after the five to seven years that the Bankruptcy and Insolvency Act now allows for such debts to be wiped clear. You must show you tried in good faith to repay the loans and are now in such tight straits that you cannot pay.

Judges and bankruptcy registrars who decide whether you should be discharged from student debts can be hard taskmasters. Last month in Toronto, Janet Mills, a deputy registrar in bankruptcy, did discharge a medical student, 29, from paying the Royal Bank of Canada $134,000. Part of it was a loan to repay student loans.

The bank withdrew its opposition when its lawyer learned the continuing effects of traumatic brain injury she incurred cycling in Vietnam after graduation. Unable to complete a residency to be a doctor, she lives on social assistance.

In January, Justice Frank Edwards of Nova Scotia made clear he thought a bankruptcy registrar was overly generous in relieving a teacher of about $20,000 in loans more than a decade after college. He did not overrule the registrar but noted the teacher had for months not made any payment yet had annual income of more than $50,000 and $2,040 in surplus funds available to pay the student debt, under Superintendent of Bankruptcy guidelines.

Registrar Scott Nettie was much harder on a Mississauga woman who works for the Office of the Superintendent of Bankruptcy. She now makes about $53,000 a year but had made an assignment in bankruptcy in 2000 when she owed $60,000, including $21,000 in student loans.She has since been discharged from paying the other debts and had applied to be discharged from her student debt.Her reason for not paying sooner? She had raised a son, 16, virtually on her own, until his recent move to live with his dad. She had health issues, missed work due to disability and had a tax reassessment when denied a disability tax credit. What upset Nettie were her decisions to: Sell her 12-year-old car and lease a new Volkswagen in June of 2007 to commute from Mississauga to her job at Yonge St. and St. Clair Ave. and drive to visit her son in Ottawa. Provide the son with a cellphone: "Millions of Canadians grew up, and, I dare say, continue to grow up, without cellphones."He concluded most Canadians would find it troubling that she wanted to be free of loans for the education that helped her find her job and qualify for a public sector pension. "There is no good reason why repayment of the loans for those studies ought not be made, over a lengthy period of time, perhaps even ... her working life.

Money matters can break or bind couples in tough economic times

Globe and Mail Monday, June. 22, 2009

Katie Dunsworth and her husband were financial opposites.Although the two earned comparable paycheques, Ms. Dunsworth, a self-described shopaholic, was spending all of her salary while her husband was saving half of his. Luckily, the couple worked through their money woes and got their financial house in order before last year’s economy collapse hurt one of her two small businesses. “This year my salary is half of what is was last year,” she said. “We talk about money all the time now, checking in on our accounts and trying to focus on the big picture.”But instead of feeling down, Ms. Dunsworth says she is reassured that she and her husband have a common financial plan. “These conversations give me all this resolve to get through this tough time with my husband. In a way, I am happier than I was a year ago.”

Money is one of the main reason couples fight. And since times are tough, you would think there are plenty of marriages breaking up. But recent research suggests that instead of driving them to divorce court, the current economic and market turmoil is drawing some Canadian couples closer together. “ In some way, the financial adversity has brought couples together. ”— Investors Group Christine Van Cauwenberghe

A poll conducted by Investors Group found that in the last year, 39 per cent of married and common-law partners have made a better effort to work together when making financial decisions. One in four said they are talking about money more often.

Fears over disappearing jobs, soaring debt levels and plunging investments have forced couples to sit down and discuss their damaged finances, says Christine Van Cauwenberghe, director of tax and estate planning with Investors Group in Winnipeg.

“The money is not flowing as easily as it was. Instead of spending fast and loose, people are talking to each other more about money,” she said. “In some way, the financial adversity has brought couples together.”

That said, there is still plenty of he-versus-she bickering going on out there about dollars and cents - mostly about spending them. Among those polled, 27 per cent said they argue about money and spending habits while only 9 per cent listed borrowing and debt as the root cause of their money quarrels.

“Interestingly, the major arguments are about the spending of money, not the borrowing of money,” Ms. Van Cauwenberghe said. “The unplanned purchases - the ones that the other spouse does not know about - that is what makes people mad.”

Although budgeting, saving, spending and investing are not the sexiest topics around, experts agree that couples need to be united on the direction of their family's personal finances. Without direct communication, financial differences, misunderstandings and insecurities can tear a marriage apart.

Kelley Keehn, a financial expert and author based in Edmonton, says that in most unions - like Ms. Dunsworth's - there tends to be a spender and a saver. Generally, one person emerges as the money manager, the one who pays the bills, negotiates the mortgage and steers the investing decisions. Problems arise when the couple are not clear on the other's money personality and are not on the same page about the family finances.

“Maybe one person is spending too much and has no clue that they are. On the other hand, the other person feels as if the financial situation is melting down and that they are doing all of the work,” says Ms. Keehn. “When times are bad, that can seem like a big job to take on. For some people, their whole lives have come crashing down.”

Once the couple is aligned, they should determine their financial roles and understand who is responsible for what. Having a clear designation should cut down on the arguing.

Ms. Van Cauwenberghe says there are specific financial and tax strategies that can help Canadian couples. For instance, two people can put as much as $10,000 a year into a tax-free savings account that allows them to save for any purchase they choose, without being taxed. If one half of a couple is unemployed, they can direct their remaining income in a way that will divide their pension income in future years. Seniors, meanwhile, can look at pension income splitting to reduce their tax bill.

For younger couples, it all comes down to budgeting. “Most people today are not getting bigger paycheques so the only way to increase the amount they save is to cut down on their spending. Look at the numbers and see where your dollars go on a monthly basis,” Ms. Van Cauwenberghe says.

Ms. Keehn, who worked as a financial planner for 12 years, has three tips for couples looking to put their financial house in order:

1) Have a formal monthly money meeting. Plan to have a conversation about the family finances each month. Talk about whether it makes sense to take that Hawaiian vacation this year and deal with any issues, such as one spouse feeling undervalued because they are not working. If the topic is suitable, for example renegotiating the home mortgage, involve the kids. If, however, the couple has deep-rooted and prolonged fights about money, they will likely need to seek professional financial help.

2) Set aside part of the family income for yourself. Although the family finances are a joint venture, make sure you have separate accounts for some amount of personal spending money (it can be small) that you do not have to explain to your partner. This kind of personal slush fund, which can be used for new golf clubs or a day at the spa, will cut down on the fighting over who is spending money on what.

3) Talk about the financial and emotional impacts of investing. Investment styles and risk-tolerance are specific to each individual, but in many cases Ms. Keehn says women tend to be more risk-averse than their male counterparts. Deciding when and if it is a good time to dive back into the stock market can be an emotional subject, one that needs to be addressed. “I see tons of couples, fighting about this, especially right now,” she said.

Bankruptcies up `frightening' 33% as consumers struggle to pay bills

June 05, 2009 Toronto Star

Bankruptcies in Canada jumped in April from a year ago as more consumers gave up on paying their bills amid the country's first recession since the 1990s – and things are expected to get worse before they get better.

Consumer and business bankruptcies rose 33 per cent to 11,465 in April compared with the same month last year.Surging consumer filings offset a drop in business bankruptcies to produce an overall rise. "We find it frightening that the numbers have risen so dramatically, but we're not surprised. We know consumers have been struggling for a long time," said Elena Jara, credit counsellor and education coordinator for Credit Canada, a non-profit counselling service."With the current financial climate, consumers are giving up and they think that their best option is bankruptcy," she said.

In the 12 months ended in April, there were 106,459 bankruptcies, 21 per cent more than the 87,929 filed in the previous 12 months, according to the Industry Canada agency's website. In total, 10,936 personal bankruptcies were filed in April, up 36.1 per cent from the 8,035 in the same month a year earlier. There were also 100,587 personal bankruptcies in the 12 months ending in April, or 23.2 per cent more than in the year ended in April 2008. "It's a significant increase,'' said Andy Fisher, a bankruptcy trustee with A. Farber & Partners Inc. "In our operations in the GTA, we've had record numbers of people (filing for bankruptcy) in the first four months of this year," he said. "I think it will be a busy time for the next three or four years in our business."

Business bankruptcies fell 10.6 per cent in April, to 529, compared with April of last year, when 592 businesses declared bankrupcty. And the number of businesses that filed for bankruptcy in the year ended in April fell 6.2 per cent, to 5,872, compared with the previous year. A report released last month by CIBC World Markets suggested business bankruptcies declined because companies were taking "pre-emptive action" to slash jobs in the face of the economic slowdown. This downsizing may be helping companies fare better than they have in past downturns, allowing them to stay afloat even as business bankruptcies rise sharply in the United States.

The latest consumer data on credit delinquencies from Equifax Canada help explain the personal bankruptcy trend: Canadians continue to fall behind on their credit payments at an increasing rate.The average delinquency rate rose by 13 per cent over the year ending April 30, the company reported this week. In March 2009, the annual increase in delinquency rates was about 9 per cent. The average delinquency rate for all of Canada as of April 30, 2009, was 1.48 per cent. Equifax defines delinquent accounts as credit facilities 90 days or more past due.Nova Scotia had the highest average delinquency rate among the provinces in April, at 2.03 per cent; Saskatchewan had the lowest rate, at 1.19 per cent. Ontario's rate was 1.69 per cent for the month. Urban areas experienced some of the largest jumps in delinquency rates. Seven out of the 10 cities monitored by Equifax had annual increases.

Toronto continues to have the highest rate, at 1.92 per cent, although its yearly increase is 8 per cent, below the national average.

"Maybe the stock market is doing okay, but I don't think we're out of the woods just yet," said Fisher. "Canadians are carrying higher debt loads and it's becoming much harder for them to keep up with the payments."

Canadian Household Debt Reaches $1.3 Trillion and Continues to Escalate

(Vancouver, May 26, 2009) —A new report by the Certified General Accountants Association of Canada (CGA-Canada) reveals that household debt has reached an all-time high of $1.3 trillion in 2008, yet Canadians perceive their financial condition to be better than it is. According to the report, Canadian families are financing consumption activity with unearned money as they increasingly reach for credit to finance day-to-day living expenses. The report, Where Has the Money Gone: The State of Canadian Household Debt in a Stumbling Economy, is based on a consumer survey conducted in November 2008. The survey asked Canadians to reflect on the changes that had occurred in their household finances over the past three years, with a focus on household debt, income, assets, wealth, spending and savings.

“Household debt has increased significantly over recent years, jeopardizing the financial security of Canadian households,” says Anthony Ariganello, President and CEO of CGA-Canada. “Many Canadians are not aware of how the economic downturn has impacted their financial situation and continue to load up their credit cards and lines of credit, while committing few, or in some cases, no resources to savings.” In particular, 49% of Canadian families with one or more children under the age of 18 reported that their debt had increased. Lines of credit and credit cards account for the largest proportion of consumer debt, with 85% of indebted Canadians reporting that they have outstanding debt on a credit card. Some 21% of Canadians who are in debt say that they are in over their heads and can no longer manage their debt load.

“We need to recognize that the financial conditions of Canadian households have deteriorated,” says Rock Lefebvre, Vice President, Research & Standards of CGA-Canada. “The situation needs to be rectified not only to establish financial security and wellbeing for Canadians, but also to maintain a healthy economic environment.”

Lefebvre adds that there is an opportunity for government and the educational community to help Canadians improve their financial capability. More needs to be done in educating the public on money management, spending, shopping habits, warning signs of financial difficulties and obtaining and using credit.

Although CGA-Canada recognizes the importance of consumer spending for business development and for economic growth, a balanced approach to spending, saving and paying down debt is a more desirable option than trying to promote consumer spending as a solution for the current economic downturn.

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Flaherty announces new credit card rules to protect consumers

Globe and Mail May 22, 2009

One measure that will cost the banks a substantial amount of money – “tens of millions of dollars,” according to Finance Minisster Jim Flaherty – is an enforced 21-day grace period on new purchases. That means banks will not be able to charge interest on recent purchases, even if the cardholder has a balance carried over from a previous month. The package is part of an “aggressive agenda to protect consumers of financial products,” Mr. Flaherty declared at a press conference in Toronto. A source in the Finance Department said Mr. Flaherty is keen to cultivate the image of a populist who is on the side of consumers. In the past he has chided banks about the fees charged for automated bank machine transactions; he also urged retailers to drop their prices when the Canadian dollar soared to record levels against its U.S. counterpart. “The minister sees part of his job as making sure that banks and financial institutions act fairly when they go out and do business,” the source said.

Mr. Flaherty's concern about credit cards arose last fall when he became aware of high interest charges on some accounts where minimum payments weren't made. As he investigated, he realized that some banks had failed to fulfill a pledge made to Ottawa to give a 21-day interest-free grace period on new purchases. He discovered that the Finance Department had no power to regulate credit cards and felt this needed to be remedied. So he made the change in the 2009 budget.

Opposition politicians insisted yesterday that the new rules were a capitulation to the banks. “The banks won and the consumers and the middle class lost,” NDP Leader Jack Layton said. “Rates of interest have not been brought down.”He argued that banks should be forced to offer low-interest credit cards at prime plus 5 per cent. The new disclosure rules will merely let consumers know “how much they are being gouged,” Mr. Layton said.

Mr. Flaherty contends there are enough cards with low interest rates available for those who want them. “There are dozens and dozens of options for consumers,” he said. The Liberals criticized the new rules for ignoring the issue of the “interchange fees” that are charged to merchants for credit-card transactions. Liberal consumer critic Dan McTeague said those fees are putting “extraordinary pressure” on retailers.

Mr. Flaherty said he is watching the interchange fee issue closely, as is a parliamentary committee and the Competition Bureau.

The banks are also unhappy, because they think Ottawa went too far. “The [rules] are so far-reaching and so substantive, they are going to have a huge impact on banks,” said Nancy Hughes Anthony, head of the Canadian Bankers Association. She said banks will need to create a personalized analysis for each customer to disclose how long it will take to pay off debt based on a minimum monthly payment. “Just to do that is a logistical nightmare,” she said.Ms. Hughes Anthony also suggested that Mr. Flaherty might ultimately hurt the flow of credit to Canadians. “Our concern is that these regulations are very burdensome and that they are going to have an impact – potentially unintended consequences – on the choices or availability of credit.”

Canadians make a 'shift to thrift'

Downturn leads consumers to tighten their purse strings, sending personal savings rate to six-year high Globe and Mail, May. 21, 2009

Troy Manthorpe has always been frugal. But he took his thrift to a new level last week when he bought four pork rib roasts marked down to half price because swine flu fears had hampered sales. Mr. Manthorpe picked up a Sicilian red from a discount rack at the liquor store for $10.99, marked down from $14.99, and saved 40 per cent on cod liver oil pills by buying the pharmacy's house brand rather than his usual name brand. This year alone, he and his wife, Rosalyn Manthorpe, have also put $7,000 into Tax Free Savings Accounts, increasing their personal savings rate by about 20 per cent from last year.

The Coquitlam, B.C., couple are the face of what Toronto-Dominion Bank economist Diana Petramala described yesterday as a noticeable "shift to thrift" as Canadians put more of their income away, boosting the personal savings rate.

"Households have constrained their spending considerably, and the savings rate rose to a six-year high of 4.7 per cent by the end of 2008," Ms. Petramala said in a research report.

"The combination of plunging stock markets, falling home prices, considerable job losses and sour consumer confidence has led consumers to tighten their purse strings." She predicted the personal savings rate will average around 6 to 7 per cent over the next five years, more than double the rate of the past five years.

Consumers will not stop spending, she said, but the rate of consumer spending will increase more slowly.

While retailers will have to fight harder for the consumer dollar, Ms. Petramala said the increase in savings rates, and a reduction in personal debt levels, "is not necessarily a bad thing" for the Canadian economy."We know that corporations have had a lot of hardships and it's going to be difficult for them to build up their savings. Consumers are going to have to pick up some of that slack [in savings]."

The personal savings rate fell as low as 1.9 per cent in the fourth quarter of 2007, as rising home values and robust stock market gains left Canadians feeling flush. Low interest rates and easy credit also made it easier for Canadians to indulge themselves, Ms. Petramala said.

"The wealth accumulation meant that households felt more financially sound, and it likely had a significant impact on the willingness to save less out of personal income. The downside is that it also left households more vulnerable to wealth corrections."

While higher savings are seen as a positive trend for recession-wary consumers, their spending will also be key to helping to pull Canada out of the current slump.

For his part, Mr. Manthorpe, a business administrator at Manthorpe Law Offices in Surrey, B.C., where his wife has a legal practice, said he's always had a tendency to be thrifty. "But I think in the past year, I have been more thrifty than ever," he said.

Similarly, in Regina, Ken Hodson's family expects to put between 10 and 12 per cent of household income into personal savings this year, up from roughly 3 to 4 per cent last year.

Summer vacation plans will be scaled back. And when Mr. Hodson and his wife eat out with their two young children, they keep it modest.Mr. Hodson, a treasury analyst with SaskEnergy, has a stable job and, unlike many Canadians, "we did not spend silly over the last several years." Still, he said, it seems prudent to set aside more for the family's future.

Ms. Petramala noted that Canadians were on a "shopping spree" in the five years that preceded the recession. "Households bought new cars, fancy home furnishings, the latest fashions and ate out at their favourite restaurants," she said. "... During this time, households overspent relative to their income, became overextended with debt and saved too little. Now, with the Canadian economy in recession, it is of no surprise the period characterized by consumerism has ended."

No credit-card fee relief in sight

toronto Star, May 16, 2009

Canadians have a love-hate relationship with our banks. We love that they've remained financially strong during an historic global credit storm, earning worldwide praise and ensuring our money is safe. We hate how much we often pay in fees and interest charges for banking services and loans, and many complain about the banks' usually fat profits.

Adding to the "love" side of the equation these days: some mortgage rates have dropped considerably. Many homeowners are now enjoying variable mortgage rates below 2 per cent.

Adding to the "hate" side: stubbornly high credit-card interest rates and recent moves by several banks to hike rates on personal lines of credit – at a time when the Bank of Canada has slashed its key overnight rate to a historic low of just 0.25 per cent in a bid to revive the economy.

Banks explained the recent moves to raise rates on lines of credit by saying their cost of borrowing has risen dramatically amid the credit crunch. That argument holds less water lately, since credit conditions have steadily improved this year and the banks' cost of capital has fallen.

But credit-card holders carrying a balance aren't likely to see relief anytime soon. Financial institutions may be paying less to borrow certain funds, but experts say that is unlikely to have a downward pressure on rates. That's because most of those loans are not backed by collateral, making them relatively "risky" even in good economic times. The unemployment rate is at a seven-year high, which is fuelling a spike in credit-card defaults and personal bankruptcies.

Most banks are expected to report climbing losses on cards when they disclose their second-quarter results later this month – that's despite taking action to cut credit limits on dodgy accounts and hiking penalties for those who pay late.As evidence mounts that increasing numbers of Canadians are struggling to pay off those debts, the federal government is once again facing pressure to regulate. Parliamentarians have embarked on two studies, marking at least the fifth and sixth time they've launched probes since the mid-1980s.

Federal Finance Minister Jim Flaherty, meanwhile, plans to release a "set of regulations" in the coming weeks. "The other part is financial literacy, making sure people understand what is disclosed to them," Flaherty said last week.Critics, however, are already dismissing Flaherty's plan as political posturing. And that's fuelling a contentious debate on whether Ottawa should impose a cap on credit-card interest rates.

Senator Pierrette Ringuette, a Liberal who spearheaded the Senate banking committee's study of credit and debit, is convinced that it should. "It is absolutely absurd to have interest rates on credit cards at 19 and up to 25 per cent," she said, noting that banks are getting relief on their funding costs.

Aside from historically low Bank of Canada rates, the London interbank offered rate, or LIBOR, has fallen in recent months, signalling that banks are more willing to lend to each other in international markets. Even medium-term funding costs, such as the spread between five-year bank bonds and government bonds, are heading south, albeit not as rapidly as shorter-term rates. Longer-terms costs, though, remain elevated. The Canadian Bankers Association says each bank needs its own mix of funds. It also estimates the Bank of Canada's key rate represents about 1 per cent of overall borrowing.

Nonetheless, if banks are getting more breathing room, so should consumers, said Ringuette. But she hesitates to define a ceiling for rates because banks refuse to disclose their costs and revenues on cards.Previous parliamentary committees have tried but the issue has proved controversial. One report in 1989 recommended a cap of eight percentage points above the bank rate. Another in 1992 suggested caps were a bad idea.The NDP, meanwhile, currently advocates a cap of five percentage points above the banks' prime rates. "Credit-card companies can still make billions of dollars off that type of interest rate," said Glenn Thibeault, the NDP's consumer protection critic, concluding a cap should be considered because more Canadians are falling behind on their bills.

Rate-cap advocates have long insisted the idea has economic merit. In 1997, Industry Canada estimated that for each percentage-point drop in credit-card interest rates, $10 million is put back into the economy per month, according to parliamentary transcripts. Government officials, however, were unable to provide a more recent estimate.Not everyone, however, supports the idea of a cap – even those who appear to be agitating for regulation. Mel Fruitman, spokesperson for the Consumers' Association of Canada, said other issues such as reduced grace periods and stiffer penalty charges are proving more "insidious." Said Fruitman: "Simply putting a cap on the service charges, the interest charges might not have the desired result without sorting out these other problems."

The Canadian Community Reinvestment Coalition worries that banks would retaliate to a cap by choking off credit to lower-income Canadians. Chairman Duff Conacher said Ottawa should instead undertake a "forensic audit" of banks' fees and interest rates to determine if their profit margins are reasonable, about 15 to 20 per cent over cost.

Costs vary from bank to bank, according to the bankers' association. It also stresses that several variables are considered when setting interest rates, including the provision of an interest-free period from purchase to payment and the risks associated with providing "unsecured credit." There are also a slew of costs for transactions, technology, rewards programs, fraud and delinquencies. "Credit- card interest rates tend to be higher than other loans because there is no collateral involved so there is a higher risk for the issuer," said spokesperson Maura Drew-Lytle in an email. And while losses appear to be on the rise, about 70 per cent of Canadian households pay off their credit card balances in full each month, she said. Canadians who carry a balance have lower-cost alternatives including more than 60 low-rate cards in addition to personal lines of credit.

Of course, some say cardholders carrying a balance have only themselves to blame for paying high rates of interest; don't take on debt you can't afford. And some academics flatly reject the need for caps or more government study on credit cards.

Tom Velk, a banking expert at McGill University, says Canadians are equally cynical about the current round of parliamentary hearings. "I think it is demagoguery, it's vote buying, it's, you know, putting on a show for people who believe that the banks are run by robber barons and so on," he said. "I don't think anything will come of it of any significance."

Ottawa considering regulating credit cards

The Canadian Press April 22, 2009

Federal Finance Minister Jim Flaherty told reporters Wednesday that the Canadian government is working on regulating credit card companies. The Finance Minister noted that interest rates for credit cards remain high despite aggressive rate reductions by the Bank of Canada.The Minister did not say what he had in mind in terms of regulation, nor was it clear whether the government plans to limit interest charges.“There are number of issues we can address with respect to credit cards,” Mr. Flaherty said. “So we have regulatory power and we're working on certain regulations, which I'll be able to speak about publicly soon.”

Finance Minister Jim Flaherty did not say Wednesday what he had in mind in terms of regulation, nor was it clear whether the government plans to limit interest charges. He didn't respond to a question about interest rates. In the January budget, the government said it would move to limit “business practices that are not beneficial to consumers,” adding that one measure would be to require a minimum grace interest-free period on new purchases.

The minister's comments came as the heads of Visa Canada and MasterCard Canada, the country's dominant credit card companies, appeared before the Senate banking committee to argue against regulation.They also asked for further powers to enter the debit-card market, which withdraws funds directly from a consumer's accounts — a business that is dominated by Canada's chartered banks.

MasterCard Canada president Kevin Stanton said regulation of credit card companies would be a mistake that would damage consumers.

“Canada's current regulatory framework safeguards the interests of all participants, and direct regulatory price controls will suppress innovation, reduce competition and harm consumers,” he told the committee Wednesday afternoon. Credit card companies set so-called interchange rates, which indirectly help determine how much merchants must pay for their bank or other service supplier to process credit card transactions.

The more visible and controversial interest rates charged to card users on unpaid balances are set by the chartered banks and other companies that issue the cards.

Last month, spokesman for the Canadian Bankers Association said one reason rates are high is that delinquency has risen from about 1 per cent to 4.5 per cent as a result of the recession, noting that 70 per cent of users pay no interest because they pay on time.Mr. Stanton said MasterCard sets the interchange fee in order to maximize card use, saying Canada's rates are lower than many industrialized countries, including the United States.And he argued that legislation in Australia to limit interchange rates has not resulted in lower prices for consumers, a response that was greeted with skepticism by Liberal Senator Pierrette Ringuette.

Mr. Stanton said that allowing the credit card companies to enter the debit market would increase competition and give consumers greater benefits, including use around the world.

Banks warier of credit cards, executives say

Mar 31, 2009 Toronto Star

Canada's slumping economy, including escalating job losses and personal bankruptcies, is weighing on consumer lending at major banks. Industry executives told a financial services conference in Montreal today that more cracks are appearing in credit-card lending. Faced with higher loss rates, banks are moving swiftly to mitigate their risks by stepping up collections and cutting credit limits to high-risk clients.Confirmation that more consumers are falling behind, though, is bound to fuel the debate on whether the federal government should step in and regulate the credit card industry.

Canadian Imperial Bank of Commerce, which administers Canada's largest credit card portfolio, is accepting fewer new clients and is keeping a watchful eye on existing accounts.Sonia Baxendale, head of CIBC's retail operations, said higher unemployment and bankruptcy rates prompted the bank's proactive stance. "While the overall industry growth rates have slowed, we have intentionally reduced our growth faster and deeper than our competitors in light of our size and economic uncertainty," she said.CIBC began curbing credit-card lending during the second half of fiscal 2008 and will remain prudent this year. "Collection activities have increased and so we're managing our collection processes differently," Baxendale said. "(We are) monitoring our accounts earlier and ensuring that we get to our clients and either assist them in other ways of managing their credit ... or simply reducing the available credit where we feel that is absolutely necessary."

Robert Sedran, the conference's host and an analyst with National Bank Financial, said the industry's credit-card loss rates already appear to be outpacing levels recorded in previous recessions. "Already, where we are seems to be worse," he said. Baxendale, however, said CIBC's loss rates are matching those of previous downturns. Nonetheless, she conceded the sputtering economy is impacting other aspects of the bank's loan book. Mortgage lending has slowed amid the cooling housing market, while more consumers appear to be relying on their personal lines of credit. "We are seeing the natural draw down of lines of credit authorized over the past two years," she said. "Our average authorized line of credit to home value is approximately 60 per cent and we continue to see well below 50 per cent of the total available facilities being utilized."

The Bank of Montreal is also taking action to limit loan losses, said Frank Techar, head of personal and commercial banking. "We've maintained conservative underwriting practices over the years and over the last 12 months we've made targeted adjustments to lending strategies to ensure our underwriting is appropriate given the environment," he said.BMO has increased staff in its collection department and its proactively identifying "high-risk" accounts."The consumer loss ratio is rising but it is expected to remain within historic loss," Techar said. While credit-card losses are certainly picking up pace, BMO's losses are less severe than those of other banks."In fact, for the last three months that data is available, we are 100 basis points better than the average for the Canadian banks for credit-card loss," Techar said. "We're ready to do everything we can for our customers that are in distress to get them back on their feet."

The Bank of Nova Scotia, meanwhile, is tightening up its overall risk management strategy and cutting back on expenses. That involves "countless stress testing" in numerous portfolios and slowing down new branch openings.Despite those measures, Scotiabank's overall loan losses are expected to increase this year, conceded chief executive officer Rick Waugh. "They have to reflect the realities of this market."

Those market conditions, however are looking increasingly grim. Mounting job losses pushed the national unemployment rate to 7.7 per cent in February and some economists believe it could climb as high as 10 per cent before the economy rebounds.

Those shrinking payrolls are also fuelling an increase in consumer bankruptcies. According to the Office of the Superintendent of Bankruptcy, there were 7,944 consumer bankruptcies in January, almost 22 per cent more than a year earlier.Against that backdrop, Ottawa is facing growing pressure to regulate the credit card industry. A Senate committee is holding hearings again this week on that topic and the NDP is signalling plans to introduce a consumer bill of rights.

"While banks and credit card companies are entitled to earn a fair profit, it shouldn't be generated by ripping off consumers and forcing them into accepting higher interest rates and inexplicable fees," said NDP consumer critic Glenn Thibeault in a release last week.

Credit card companies, however, are warning that heavy-handed regulation in the credit and debit markets will stifle innovation and consumer choice. Yesterday, Tim Wilson, head of Visa Canada, told a Toronto business audience that government regulation would ultimately hurt consumers by limiting competition.

Equifax Data Reveals More Canadians Not Paying Bills on Time

TORONTO, March 31 /CNW/ - Equifax Canada today released the latest data
from an economic report developed by its Consulting Solutions team revealing
that Canadians are failing to pay their bills on time at an increasing rate.Driven mostly by credit card debt, the average national consumer delinquency rate increased by 7.3%, over the period from February 2008 and February 2009. In addition to the overall increase in the national delinquency rate, Equifax also reported that the rate has increased at different rates across the country. Among major Canadian centres, Montreal saw the greatest increase at 15.9%. Other cities that experienced an above-average increase include:

    -   Calgary: 13.2% increase
    -   Quebec City: 12.8% increase
    -   Hamilton: 10.9% increase
    -   Edmonton: 9.7% increase
    -   London: 9.3% increase

Some cities experienced below-average increases, including:
    -   Toronto: 1.4% increase
    -   Ottawa-Gatineau: 4.2% increase
    -   Halifax: 4.8% increase
    -   Vancouver: 5.5% increase

"Our data indicates that delinquency rates are impacted by regionality.Financial institutions may find this of interest as they develop their risk strategies," said Nadim Abdo, Vice President of Equifax Consulting Solutions. Equifax Consulting Solutions defines delinquent accounts as those that are 90 days or worse past due. Its team of seasoned consultants and analysts compute delinquency rates by analyzing data from Canadian lenders who report to Equifax on a daily basis.

Credit card debt fuelling bankruptcies. Cardholders paying more interest, hearing told

March 27, 2009 Toronto Star

Credit card debt is the main factor in 80 per cent of the rising tide of personal bankruptcies, a Senate committee probing Canada's credit and debit payment system heard yesterday. And the financial institutions that issue the cards are at least partly to blame, a Quebec-based consumer association told the committee during its second day of hearings.

"The financial institutions are increasingly leaving aside their social responsibilities," said Genevieve Reed, head of research and advocacy for Option Consommateurs.

Whereas a few years ago, mortgage defaults were the main factor in bankruptcy cases, now it's credit card debt, Reed said in an interview following her appearance. Personal bankruptcy rates jumped 22 per cent in January, over the year-ago period, according to federal data released this week.

But at least one Senator said Reed is headed in the wrong direction toward "Big Daddy" government that erects barriers against what consumers can do."The global tendency is to be more transparent, provide the facts and leave it to consumers to decide," said Liberal Senator Paul Massicotte.

The Senate is holding hearings amid growing complaints from consumers and business about credit card fees and rates.Reed cited industry changes to minimum monthly payment policies as an example of how the cost of credit card debt has been rising even as interest rates remained unchanged, in ways that few consumers grasp.

A few years ago, if you ran up a $1,000 credit card bill and could make only the minimum monthly payment, it would cost you $382 in interest and take five years to wipe out that debt, she said. Today, that same $1,000 credit card bill would cost $1,900 – five times more – and take 19 years to pay off at the same rate of interest.

Both examples assume the cardholder makes no additional purchases, pays only the minimum each month and an interest rate on the card of 19 per cent.

The cost is rising because the credit card industry has been quietly reducing the minimum monthly payment, from 5 per cent in the 1990s to 2 per cent last year.

Cardholders are paying more interest because the outstanding balance is higher.

Consumer bankruptcies spike in January

Canwest News Service March 25, 2009

Consumer bankruptcies jumped nearly 22 per cent in January from a year earlier as a deepening economic downturn took a toll on personal finances , the beginning of what credit experts warn could be a wave of bankruptcies this year that are the inevitable result of a rapidly rising unemployment rate. Within minutes of publishing the latest bankruptcy statistics Tuesday morning, the federal government said the number of Canadians receiving employment insurance jumped 21 per cent, to 567,000 recipients in January. Human Resources Minister Diane Finley said the federal government will spend an additional $60 million to more rapidly process new claims.Though the Canadian economy created more than 163,000 new jobs between January and October last year, it has rapidly shed jobs since then. Between November and the end of February, more than 295,000 Canadians have lost their jobs.

By last summer, the steady work Daniel Asboth, 25, had as a drywaller in Toronto was all but gone. But he still had to make payments on his "baby," an Acura automobile, and the rent, and credit-card bills that were piling up. "I was making $1,000 a week," Asboth said. "When you are used to getting that money, you don't think about saving, because you know you are going to be getting that money at the end of the week. Then, all of a sudden, it stopped." Asboth admits he was "bad" with managing money, but said he felt blindsided when his work ran out and debt went up.Owing more than $25,000, in October, he declared bankruptcy. "I wish I didn't have to do it but, at the same time, I had no other choice," he said, adding collection agencies were getting "aggressive." "This has taught me to save for rainy days," said Asboth. "I didn't come from too much money, so once I got my hands on it, I just wanted to do things I had never been able to do in my life. I wasn't prepared for a slow spell."

Ian Lee, a former mortgage officer at one of Canada's banks and now a business professor at Ottawa's Carleton University, told a parliamentary committee Tuesday that, while the recession is the chief cause of what will be a rapidly rising bankruptcy rate this year, too-easy access to credit, and a consumer that has become addicted to borrowing, are aggravating factors. "There hasn't been a lack of access to consumer credit. Consumers are wildly over-leveraged. The problem isn't being able to get credit at the consumer side, it's they have too much credit in terms of what they carry," Lee told MPs.

More than 10,700 consumers in Canada declared themselves insolvent in January, a jump of 23.1 per cent compared to the same month in 2008. For the 12-month period ending January 31, 2009, 117,704 consumers had declared themselves insolvent, a 16 per cent year-over-year jump. "These numbers represent people who almost certainly will be unable to be part of the economic recovery" said Michel Arnold, executive director of Option consommateurs, a Montreal-based non-profit consumer advocacy group.

Lee noted that household debt, as a percentage of household disposable income, had doubled in the last 25 years, from 15.7 per cent in 1981 to 36.2 per cent. At the same, time the savings rate plummeted to 0.5 per cent in 2005, the lowest level recorded by Statistics Canada since the 1920s. In other words, for every $100 Canadians receive in income, they are saving, on average, 50 cents. "One of the points that this recession is bringing out is the fact that people have been carrying a lot of debt, and this is an eye-opener, because when that job is lost or those hours are cut, it really sets off a panic," said Linda Stern, a Toronto-based bankruptcy trustee and vice-president with Deloitte and Touche Inc.

In Calgary, Alger said the recent layoffs in the oilpatch have yet to translate into higher bankruptcies, though he expects that to pick up in the next several weeks.

Many new bankrupts are, like Toronto drywaller Asboth, connected in some way to the construction or housing markets, which were red-hot a year ago and are now ice-cold.

Alger said that, in Calgary, when house prices were soaring, many consumers borrowed against that new equity in their homes and, now housing prices have tumbled back to earth, credit is no longer available, or is too pricey for those with outstanding second or third mortgages."I think some people were using their houses as piggy banks. It was an ATM machine," said Alger.Others are tradespeople or contractors who are unable to make payments on equipment or tools bought during last year's boom. "It's people that don't have a safety margin," said Alger. "If you're living paycheque-to-paycheque and the paycheque's gone, you're in trouble if you're servicing a bunch of debt."